Marketmind: Good is bad? Depends on who or what you are

A look at the day ahead in European and global markets from Wayne Cole.

Good is bad again – or vice versa – as markets worry upbeat U.S. retail sales will lead to higher interest rates for longer.

Some of the better-than-expected performance was likely due to rising prices, but Walmart (NYSE:WMT)’s success suggests discounting was driving volumes and might be disinflationary.

Anyway, sales ex autos and gas were up a solid 0.9% and the control group for GDP up 0.7%. That pushed the Atlanta Fed’s GDPNow to 4.4%, implying the economy is speeding up not slowing down. What’s bad for Wall Street might be good for everyone else.

The bullish flattening in Treasuries was striking, with the long end rallying hard and the curve bending backwards so far that 10-year yields are 10-basis points below the effective Fed funds rate.

When it’s cheaper to borrow for a decade than overnight, it suggests the bond market is wagering the Fed will have to hike rates so high that recession is all but inevitable.

You’d think in the 21st century, practitioners of the dismal science would have found some way to control inflation other than putting people out of work. What’s good for bonds will be bad for everyone else.

Which brings us to the U.K. Chancellor’s Autumn Statement, where tax hikes and spending cuts are on the menu, along with a surcharge of 11.1% for inflation.

Austerity is apparently needed to reassure investors of the government’s fiscal credibility, though only because they were so alarmed by Downing Street’s last effort at a mini-budget. So what’s good for markets has to be bad for everyone else.

Key developments that could influence markets on Thursday:

Host of central bankers speakers, including at least five from the Fed and others from the ECB, BoE and SNB.

More retail news with results from Alibaba (NYSE:BABA), Macy’s (NYSE:M), Kohl’s (NYSE:KSS) and Gap.