Stocks, U.S. Futures Dip on Inflation, China Risks: Markets Wrap

On Oct 12, 2021

(Bloomberg) — Stocks and U.S. equity futures fell Tuesday, hurt by concerns about elevated inflation stoked by energy costs and the possibility of a widening regulatory crackdown in China.

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MSCI Inc.’s Asia-Pacific index snapped a three-day climb, with the technology sector leading losses and China underperforming. Signs that Beijing is widening its scrutiny of private and state enterprises soured the broader mood. S&P 500, Nasdaq 100 and European futures retreated following declines on Wall Street as the prospect of a slowing recovery from the pandemic shadowed trading.

Oil held above $80 a barrel amid a power crisis from Europe to Asia. China’s thermal coal futures surged to a record for a second day. The energy crunch is squeezing supplies of aluminum, whose price hit a 13-year high. Other industrial metals have also rallied, fueling inflationary pressures.

The Treasury yield curve flattened as yields on shorter-term maturities increased, while the rate on the 10-year bond was little changed. The dollar trimmed an advance.

Global markets are struggling to shake off worries that inflation — spurred by an energy crunch and pandemic-related supply-chain snarls — will sap company profits and economic expansion. Financial firms this week will kick off the third-quarter earnings season, heralding a key test of investor confidence.

“We expect third-quarter earnings to be very, very strong,” Rebecca Felton, senior market strategist at RiverFront Investment Group, said on Bloomberg Television. “But it’s that forward look into the fourth quarter and 2022 that has everyone on edge.”

Traders are also awaiting reports on the U.S. consumer-price index and retail sales. The figures will help inform expectations about the likely timeline for Federal Reserve tapering and any eventual rate hikes.

“Upcoming data releases could spur added stagflation concerns,” Steve Englander, head of global G10 FX research and North America macro strategy at Standard Chartered Plc, wrote in a note. “In particular, September CPI inflation could be higher than expected and retail sales lower.”

The debt crisis at China Evergrande Group continues to simmer. Some holders of two Evergrande U.S. dollar bonds with coupons due Monday said they had yet to receive payment, the latest sign of the property developer’s woes.

In South Korea, the won dropped below the psychological barrier of 1,200 per dollar as the central bank held off from a second-straight rate hike. Thailand’s move to boost tourism by gradually scrapping mandatory quarantine for vaccinated visitors saw the baht climb the most since August.

Elsewhere, a rally in Bitcoin paused at about the $57,000 level.

Here are a few events to watch this week:

Atlanta Fed President Raphael Bostic speaks on inflation Tuesday
U.S. FOMC minutes and CPI Wednesday
China PPI, CPI Thursday
U.S. initial jobless claims, PPI Thursday

For more market analysis, read our MLIV blog.

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