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GLOBAL MARKETS-Shares try to steady, bonds fret on U.S. inflation

From Reuters - February 11, 2018

SYDNEY (Reuters) - Asian share markets were struggling to find their footing on Monday as investors fretted about the risks from looming U.S. inflation data, although early gains on S&P futures offered a sliver of support.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS edged up 0.1 percent, having suffered a 7.3 percent drubbing last week. Japan's Nikkei .N225 was closed for a holiday, but Australia's main indexshed another 0.4 percent.

E-Mini futures for the S&P 500 ESc1 edged up 0.5 percent, adding to a late bounce on Friday. Yet a relatively sharp 11 tick drop in Treasury bond futures <0#YT:> suggested it was too early to sound an all-clear on volatility.

A massive buildup in market leverage has been partially unwound in the blink of an eye and morphed into something far more broad-based, said Chris Weston, chief market strategist at broker IG.

One could argue that it is the U.S. bond market that is the driving force, and will remain so through this coming week.

Particularly challenging will be U.S. consumer price data on Wednesday given it was fears of faster inflation, and thus more aggressive rate rises, that triggered the global rout in the first place.

Median forecasts are for consumer price inflation to slow a little to 1.9 percent in January, mainly due to base effects, while the core measure is seen ticking down to 1.7 percent.

A result in-line or lower would likely be a big relief, while anything higher could well spook investors, lift bond yields and batter stocks.

Aziz Sunderji, an economist at Barclays, suspects the inflation scare will prove to be transitory.

Tight jobs markets will pressure wages upwards, but technology, automation, and globalization are importantand slow movingforces acting in the opposite direction, Sunderji argued in a note to clients.

Paradigms dont shift on a dime. In our view, the recent market turmoil is a bump in the road, not a wholesale change of direction.

THE RETURN OF VOLATILITY

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