Wednesday, October 27, 2021
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Stocks rise as inflation pushes up interest rate bets, dollar moderates

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SINGAPORE – Global stock markets rose and longer-term bonds rallied on Thursday as investors viewed rising inflation as leading to rate hikes around the world.

The dollar fell further from the 2021 highs that climbed earlier in the week.

Europe’s STOXX 600 index rose to its highest point of the month, opening 0.6%. The London FTSE and the DAX and CAC40 in Frankfurt and Paris were doing well, and Wall Street futures were also up 0.5%.

The MSCI index of Asian stocks outside of Japan gained 0.5%. Japan’s Nikkei rose 1.4%. Real estate stocks suffered in Shanghai, keeping the general index flat, while Hong Kong markets were closed for the holidays.

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China provided the latest sign of price pressure in supply chains, as data showed that annual producer prices grew at their fastest pace on record in September.

That followed Wednesday’s figures showing another solid rise in U.S. consumer prices last month, along with minutes from the September Federal Reserve meeting suggesting growing concern from policy makers over the issue. inflation.

The markets’ response has been to bet that central bankers are forced to raise rates sooner rather than later, but then they sit in their hands for a while. Fed funds futures are priced up 25 basis points next September, leading from near the end of 2022, but prices also suggest rates will hover around just 1.5% in five years.

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“The market continued to advance in the price of the first rate hike while the price of the terminal fee decreased, which we believe is a reflection of the market price in a policy error,” said analysts at TD Securities.

Short-term Treasury yields rose while long-term yields fell, flattening the curve. Gold was flat after enjoying its best session in seven months on Wednesday. Bitcoin, sometimes touted as an inflation hedge, was up 1.5% to a five-month high of $ 58,550.

Longer-term yields also fell in Asia and the dollar, which rebounded through September, then fell sharply as long-term Treasury yields fell, extending losses somewhat.

Later in the day, traders await US producer prices and jobless claims figures, as well as appearances from the Bank of England and policymakers from the Federal Reserve.

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Earnings reports are also scheduled for Bank of America, Wells Fargo, Morgan Stanley and Citi.

POLICY APPROACH

In addition to removing the reference to Fed members who “generally” expect inflationary pressures to ease, last month’s minutes also showed agreement that the reduction in asset purchases will begin soon.

Central banks elsewhere are also asking for time to support pandemic-era policies. Singapore’s central bank unexpectedly tightened monetary policy on Thursday, citing forecasts of higher inflation.

In Australia, a drop in employment figures and comments from a central bank official on lagging wages have also not derailed the build-up of recent market bets on rate hikes starting next year.

Swap markets have traded around 90 basis points of rate hikes by the end of 2023 despite the Reserve Bank of Australia insisting that hikes are unlikely before 2024.

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Currency markets were fairly quiet Thursday after the dollar’s slide on Wednesday, which was the euro’s steepest decline in five months.

The euro rose to $ 1.1601 in Asia, while the British pound, Australian dollar and New Zealand dollar contributed slightly to Wednesday’s gains.

In commodities, on Thursday, oil futures stabilized, hovering comfortably above $ 80 a barrel, with US crude at $ 81.09 a barrel and Brent at $ 83.88.

Gold held overnight gains at $ 1,792 an ounce.

The 10-year Treasury yield stood at 1.5491% after falling three basis points overnight and the two-year yield fell marginally to 0.356% after rising 1.8 basis points overnight.

(Reporting by Tom Westbrook; Edited by Edwina Gibbs and Muralikumar Anantharaman)

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