Inflation expectations are elevated and it’s the biggest risk to investors: Global market strategist
U.S. stocks extended a rebound on Monday as a whipsaw in energy prices relieved some pressure on the market.
The S&P 500 added 0.3 per cent and the Nasdaq 100 gained 1 per cent in a continuation of last week’s gains when solid corporate earnings and economic reports were enough to outweigh concerns about energy shortages and supply-chain disruptions.
Earlier on Monday OPEC+ failed to meet output targets and Russia opted against sending more natural gas to Europe, pushing commodity prices higher. However, oil’s decline from a session high eased some fears of inflation and policy tightening. The S&P 500 has now pared back losses from an all-time high to about 1.1 per cent.
“The issues that caused the pullback have quieted over the past two weeks, which has rightly allowed stocks to bounce,” wrote Tom Essaye, a former Merrill Lynch trader who founded “The Sevens Report” newsletter. “But these issues are not resolved by any stretch of the imagination.”
The yield on the 10-year Treasury note climbed to 1.59 per cent while U.K. yields surged after the Bank of England warned on the need to respond to price pressures. Rate-hike bets have now also picked up in Australia and New Zealand, where inflation accelerated to the fastest pace in 10 years. The dollar was little changed.
“Rising commodity prices -- particularly oil prices, which only appear to go in one direction at the moment -- are boosting expectations of high inflation becoming more entrenched and a sooner move by the Fed to raise interest rates,” said Fiona Cincotta, senior financial markets analyst at City Index.
On top of that, there are fears the central bank will not be nimble enough to respond to a miscalculation, said Michael Darda, chief economist and market strategist at MKM Holdings. “That’s where we could end up with recessionary risks down the line,” he warned.
Speakers from the Federal Reserve this week are expected to try to calm market jitters about future tightening. Additionally, another week of corporate earnings will offer traders more insight into the health of major corporations.
“We have used most of the superlatives we know to describe corporate America’s stunning performances over the past two earnings seasons,” said Jeff Buchbinder, equity strategist for LPL Financial. “We expect solid earnings gains during the upcoming third-quarter earnings season, but upside surprises will be smaller.”
“Unfortunately, we won’t need as many superlatives,” he added.
Stocks in Europe fell while those in Asia were mixed after data China’s economy slowed in the third quarter. Bitcoin rose to US$61,320 ahead of the launch of the first futures exchange-traded fund. Gold fell 0.2 per cent.
Some of the main moves in markets:
- The S&P 500 rose 0.3 per cent as of 4:02 p.m. New York time
- The Nasdaq 100 rose 1 per cent
- The Dow Jones Industrial Average fell 0.1 per cent
- The MSCI World index rose 0.1 per cent
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at US$1.1610
- The British pound fell 0.2 per cent to US$1.3730
- The Japanese yen was little changed at 114.32 per dollar
- The yield on 10-year Treasuries advanced two basis points to 1.59 per cent
- Germany’s 10-year yield advanced two basis points to -0.15 per cent
- Britain’s 10-year yield advanced three basis points to 1.14 per cent
- West Texas Intermediate crude was little changed
- Gold futures fell 0.2 per cent to US$1,764.60 an ounce