Stagflation woes hit US stocks; The 2-year Treasury yield jumps
NEW YORK (Reuters) – US stocks fell in choppy trading on Tuesday, as investors waited for companies to report how rising prices hit their last profits, as bond yields soared and the dollar shone on the bets that monetary policy will soon be tightened.
Indeed, two U.S. Federal Reserve policymakers said on Tuesday that the central bank had kept pace to cut back its bond buying program, cementing expectations that the Fed would start withdrawing its stimulus measures during the downturn. crisis as early as next month.
Soaring oil prices have largely maintained recent gains, as U.S. stock indexes have repeatedly hovered between modest gains and losses before a flurry of third-quarter bank profit reports from Wall Street on Wednesday and Thursday.
After seeing oil prices rise steadily over the past 18 months, many investors are now worried that rising prices will exacerbate supply bottlenecks, weigh on businesses and dampen economic growth.
Coal prices have reached a record high and, although gas prices have reached recent highs, they remain four times higher in Europe than at the start of the year.
Impact of supply shortages in electrical and manufacturing components show up in data – Tuesday’s figures showed Japanese wholesale inflation hit 13-year highs last month, UK buyers cut spending , China saw a 20% drop in car sales and bottlenecks caused Germany’s economic sentiment down for a fifth month.
“We’re in a sort of wait-and-see pattern until we see the results,” said Peter Kenny, founder of Kenny’s Commentary LLC and Strategic Board Solutions LLC in New York City.
“We are seeing deteriorations in US growth, and the impact on business will be the thing to watch.”
The Dow Jones Industrial Average fell 0.34%, the S&P 500 lost 0.24%, and the Nasdaq Composite fell 0.14%.
The pan-European STOXX 600 index lost 0.07% and the gauge of MSCI stocks around the world fell 0.31%.
Oil prices were mostly stable. U.S. crude was little changed at $ 80.50 a barrel, while Brent crude briefly exceeded $ 84 a barrel before losing 0.5% to $ 83.27.
With businesses hit by persistent supply chain disruptions and inflationary pressures, the International Monetary Fund warned on Tuesday that the recovery of the global economy from the COVID-19 pandemic was limited and reduced growth prospects for the United States and other major industrial powers.
Given rising expectations that accelerating inflation will prompt central banks such as the Fed to curb their ultra-accommodative policies, benchmark bond yields have risen in anticipation of tighter monetary conditions.
Two-year Treasury yields, which climbed to 100 basis points in October, jumped to 0.3419%, a level last seen in March 2020.
In line with concerns that the surge in prices could dampen economic activity and prompt central banks to raise forward interest rates, the yield curve flattened and benchmark 10-year yields fell to 1 , 5751%, against 1.605% Friday evening.
All of these worries, along with rising Treasury yields, have supported demand for the dollar. The dollar index remained at one-year highs and held close to a three-year high against the yen.
The dollar index rose 0.149% and a stronger dollar pushed the euro down 0.27% to $ 1.1526. The Japanese yen weakened 0.31% against the greenback to 113.62 per dollar.
Gold, widely viewed as a hedge against inflation, shone on Tuesday despite the strength of the dollar.
Spot gold added 0.3% to $ 1,759.85 an ounce. US gold futures gained 0.34% to $ 1,760.60 an ounce.
Gas, CO2 and coal rebased to the start of the year, showing percentage gains
Reporting by Sujata Rao, additional reporting by Julie Zhu in Hong Kong; Editing by Rachel Armstrong, Alex Richardson, Jane Merriman, Nick Macfie and Jonathan Oatis