Stagflation Fears Stocks Stalk, Rising Yields Raise Dollar


  • Chart: Global exchange rates
  • U.S. Equity Futures Cut Losses, Nikkei Helped By Weaker Yen
  • Oil drives energy complex up and fuels inflation risk
  • The dollar hits its highest level against the yen since late 2018

LONDON, Oct. 11 (Reuters) – Stagflation nervousness dampened global equity growth on Monday, as big central banks’ tighter monetary policy bets pushed bond yields higher and the dollar to a record high nearly three years against the Japanese yen.

Brent oil prices have extended their bull run to reach the land last visited in late 2018, with gains in the energy complex fueling inflation concerns.

“Higher energy prices and shortages will inevitably spill over into global value chains in the form of higher prices and potentially shortages of industrial and consumer goods,” said Jeffrey Halley, analyst at OANDA .

“All of this makes the constant chatter of central bankers around the world that inflation is ‘transient’ increasingly hollow.”

In Europe, soaring commodity prices supported oil and mining stocks, but fears persisted about stagflation, an environment of economic stagnation and rising prices.

The euro STOXX 50 (.STOXX50E) was trading down 0.3%.

Nasdaq and S&P 500 futures fell about 0.6% and 0.3%, respectively.

The MSCI Global Equity Index (.MIWD00000PUS), which tracks the stocks of 50 countries, rose 0.1%.

Sentiment in China was helped in part by support measures planned by some cities for the besieged housing market. Read more

China’s blue-chip CSI300 index (.CSI300) rose 0.1%, while MSCI’s largest Asia-Pacific stock index outside of Japan (.MIAPJ0000PUS) rose 0.6 %.

The weaker yen gave a welcome boost to the Japanese Nikkei (.N225) which reversed initial losses to rise 1.6%.

The US earnings season kicks off this week and is likely to bring stories of supply disruptions and rising costs. JPMorgan reports Wednesday, followed by BofA, Morgan Stanley and Citigroup on Thursday, and Goldman on Friday.

US INFLATION, RETAIL SALES

The focus will also be on US inflation and retail sales data, as well as the minutes of the latest Federal Reserve meeting which is expected to confirm that a November tapering has been discussed.

“The coming week will focus on the US CPI release on Wednesday, but that could be a bit retrograde as energy has increased more recently and used car prices are on the rise again after a late summer fall which will likely be captured in this week’s release, “Deutsche Bank’s Jim Reid wrote in a note to clients.

While the US payroll figure was disappointing on Friday, this was in part due to the reopening of problems in state and local education as private sector employment was firmer.

Indeed, with a labor shortage pushing the unemployment rate down to 4.8%, investors were more concerned about the risk of wage inflation and pushed Treasury yields up sharply.

Yields on 10-year bonds were trading at 1.62%, after jumping 15 basis points last week in the biggest such rise since March.

The US fixed income and currency markets are closed on Mondays for a statutory holiday.

The 10-year German Bund yield hit its highest level since May, rising more than 2 basis points to -0.118%.

UK gilt yields rose sharply, with the 10-year yield marking its highest level since May 2019 after Bank of England policymaker Michael Saunders’ weekend comments that households should prepare for a rise in prices. rate “much earlier” as inflationary pressure intensifies.

Money markets have decided to fully integrate a 10 basis point rate hike from the European Central Bank by the end of 2022.

BofA analysts have warned that the global inflationary boost will be compounded by energy costs, with oil potentially exceeding $ 100 a barrel amid limited supply and strong demand to reopen.

The winners in such a scenario would be real assets, real estate, commodities, volatility, liquidity and emerging markets, while bonds, credit and stocks would be negatively affected.

BofA recommended commodities as a hedge and rated resources accounted for 20-25% of major stock indexes in Britain, Australia and Canada; 20% in emerging markets; 10% in the euro area, and only 5% in the United States, China and Japan.

The dollar was supported as US yields exceeded those of Germany and Japan, taking it to its highest since late 2018 against the yen at 112.90.

The euro hovered at $ 1.1570, after hitting its lowest since July of last year at $ 1.1527 last week. The dollar index held at 94.174, just after the recent high of 94.504.

The stronger dollar and higher yields weighed on gold, which offers no fixed yield, and left it sidelined at $ 1,754 an ounce.

U.S. crude oil prices have continued to climb after rising 4% last week to their highest level in nearly seven years.

Brent jumped 2.5% to $ 84.46, while US crude rose 3.3% to $ 81.98 per barrel.

Brent vs S&P Energy vs S&P 500

Reporting by Tom Arnold in London and Wayne Cole in Sydney; Editing by Simon Cameron-Moore, Jacqueline Wong, Alex Richardson and Andrew Heavens

Our Standards: Thomson Reuters Trust Principles.

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