Not the Lusitania; markets mixed after Poland missile strike

Markets Relatively Unshaken by Missile Strikes

European stocks down a touch, FTSE and dollar up a bit after a missile strikes Poland, but no major hit to risk appetite. The S&P 500 shrugged off the news – closing higher. Bulls in charge with PPI light at +8.0% vs +8.3% expected, gives the pivot chargers an excuse to bid up risk. I fear we are at the end of the current extension, around the 61.8% retracement of the Jun-Aug rally. Could see a push up to 4,100 but 4,000 looks attractive...everyone playing the long after the midterms and into the Fed meeting has had a good go and the inflation number made this move happen a lot faster than it otherwise might have.

Under the Rug – Blame Discarded by US Panic Avoidance

Poland – Ukraine playing it up of course. But the US playing it down is good for risk so far Biden says it probably didn’t come from Russia. In fact, the US told Nato partners that the blast came from a Ukrainian air defence missile. Some airlines getting offered on this with Wizz Air and EasyJet falling about 5% presumably on fears that it might tamp down demand for flights to Eastern Europe. BAE Systems, Leonardo among defence names catching a bid on it. Reaction from G7/Nato/US suggests this is a storm in a teacup – misfires happen in warfare and don’t tend to lead to meaningful escalation. It’s not the Lusitania.

Don’t Look Down – UK Inflation Continues to Soar

UK inflation super-hot at 11.1% with food inflation on fire at 16.2%. Supermarkets getting hit on this – TSCO, SBRY and MKS among the fallers as consumer looks to be an increasingly tight spot, scaling back purchases, trading down to cheaper brands. Looks like supermarkets are likewise pressured as the likes of Unilever is passing on costs, supermarkets finding it less easy to do that, so margins are compressed. Supermarkets prefer a trend of gently rising prices but currently very tricky to price appropriately. Walmart (WMT) numbers good, inventories coming back in line – remember when people said rising in-store inventory levels would be deflationary? Autumn Statement tomorrow likely to be all about inflation – targeted support from April will mean a lot higher bills for most = higher inflation and the Bank of England needing to do more and more and more. Also watch for windfall tax raid on energy and banks.

BoE Half Measures May Cause More Harm Than Good

Back to the inflation print and it just does not tally too well with the message from the Bank of England that rates don’t need to go as high as the market thinks. As I’ve consistently said, I think the BoE will need to catch up and do more than it says, but it is trying to bring market down a peg or two. GBPUSD back to 1.18 handle this morning after spiking above 1.20 yesterday as the dollar faded back to the 105 level (DXY) we’d mentioned before as a likely target and zone of support. Looks like risk off after Poland is helping USD catch a bid this morning.

Equally Muddy Waters for US Inflation Policy Makers

Fed’s Harker: "I don't want to move interest rates way up and then way down." Which can we read as ‘slowing down the pace and then keeping it high for a while’? This seems to be the consistent message.

Today – US retail sales – how much can the US consumer wear higher prices? We think they keep on wearing higher prices – as evidenced by soaring credit card debt – and that only makes the Fed need to keep squeezing rates higher. Strong print here might be signal for pullback.