LONDON, Oct 4 (Reuters) – World stocks were on the back foot on Monday and the dollar stayed close to one-year highs on concerns that higher inflation, supply shortages and China’s property sector woes would put global economic recovery at risk.
Stock markets slipped to 2-1/2-month lows last week, following a torrid September that saw them shed more than 4% as U.S. Treasury yields surged 20 basis points, the Federal Reserve signalled its readiness to start unwinding stimulus this year and Chinese property giant Evergrande headed for default.
Those factors remain in play, with trading in Evergrande shares (3333.HK) suspended, days after it missed a second set of interest payments on offshore debt. read more
Wall Street was set to open weaker, with focus on the fate of the Biden administration’s multi-trillion dollar spending plans, Congressional wrangling over the Treasury debt ceiling and Friday’s monthly jobs data that may allow the Federal Reserve to proceed with tapering its bond-buying.
Futures for the S&P 500 and Nasdaq indexes were down 0.4% , , while Dow Jones e-minis slipped 0.3% .
A pan-European equity index (.STOXX) that lost 2.2% last week seesawed around flat, while Asian shares earlier weakened (.MIAPJ0000PUS), led by a 2.7% loss in Hong Kong (.HSI) and a 1% fall in Japan’s Nikkei (.N225).
Francois Savary, CIO of Swiss wealth manager Prime Partners, said markets were increasingly pricing a stagflation scenario of lacklustre growth and high inflation, a headwind for stocks which have scaled a series of record highs and trade at expensive multiples.
“You can live with highly valued markets if you have the prospect of economic growth ahead. But if you think stagflation is becoming an issue and the only option is to tighten policy and kill economic activity, that’s not good for equities,” Savary said.
While recent data showed robust U.S. consumer spending and factory activity, inflation fears are being fanned by crude futures near three-year highs of almost $80 a barrel and European gas prices approaching a record 100 euros per megawatt hour .
That, alongside persistent supply glitches, could force central banks to tighten policy sooner than expected. read more
Already, the core U.S. PCE price index, the Fed’s preferred inflation measure, increased 3.6% in August from a year earlier, its biggest rise in three decades, while euro zone inflation hit 13-year highs. read more
While Fed boss Jerome Powell and other policymakers insist high inflation is transitory, Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities, noted “Powell also recently starting to hedge his comments too, leading investors to suspect he, too, is worried about inflation”. read more
Adding to the growth worries, investor morale in the euro zone fell for the…
Read More: Stagflation fears keep equity markets in a sombre mood