Inflation remains the key focus for global markets
Tech stocks boost equities even as energy prices resume their upward march, while the dollar and Treasuries stall
London — World markets stayed focused on rising inflation on Thursday as tech stocks rebooted global equities, oil and gas prices fired up again but the dollar and benchmark government bond yields both stalled.
Record-high Chinese factory gate inflation data overnight that came after stronger-than-expected US CPI figures on Wednesday meant the price pressure theme was very much alive, though the reaction from traders was looking more nuanced.
The dollar, which has been driven to a more than one-year high this week by growing bets on an increase in US interest rates in 2022, eased for a second day in a row along with the 10-year US Treasury yield which typically is a benchmark for global borrowing costs.
Europe’s Stoxx 600 index also climbed to its highest point of the month as investors there put aside recent caution. Wall Street futures added 0.5% too, ahead of more inflation data and big bank earnings later.
“Our take is central banks are going to look through the inflationary effects of energy prices,” said Kiran Ganesh, head of multi asset at UBS Global Wealth Management. “Individual [central bank] governors are sounding a bit more cautious but we are not going to see substantial rate hikes,” he said, adding that he didn’t foresee the situation morphing into stagflation — high inflation and stagnant growth — either.
The MSCI’s main index of Asian shares gained 0.6% in its fifth rise in six session overnight and Japan’s Nikkei climbed 1.4%, though China’s property company shares suffered more losses in Shanghai as the Evergrande crisis continued to rumble.
The FX and commodity markets were sending some mixed signals. Gold, often seen as a hedge against rising inflation, steadied after enjoying its best session in seven months on Wednesday.
Oil bulls pushed Brent crude back towards $85 a barrel. Natural gas climbed 2% having already soared more than 150% this year driving the spike in global energy prices. Bitcoin, also sometimes vaunted as an inflation hedge, rose to a five-month high of $58,550.
The dollar pulled back to a nine-day low, allowing the likes of the euro, sterling, and the Australian and New Zealand dollars to all get back up.
Expectations that the US Federal Reserve would tighten US monetary policy more quickly than previously expected saw the greenback reach the highest in more than a year on Tuesday, but it is now down for October.
US initial jobless claims and producer price inflation data are both due later in the day. Earnings reports are also scheduled from the main US banks including Bank of America, Wells Fargo, Morgan Stanley and Citi.
“It seems to be a classic case of buy the rumour sell the fact-type mentality,” said Neil Jones, head of FX sales at Mizuho. “The Fed confirmed the expectations of many investors, I would suggest, holding long dollar positions.”
Would you like to comment on this article or view other readers' comments?
Register (it’s quick and free) or sign in now.
Please read our Comment Policy before commenting.