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Stagflation woes hit U.S. stocks; 2-yr Treasury yield jumps

Stock MarketsOct 12, 2021 05:11PM ET
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2/2 © Reuters. FILE PHOTO: A man wearing a protective mask, amid the COVID-19 outbreak, is reflected on an electronic board displaying stock prices outside a brokerage in Tokyo, Japan, September 21, 2021. REUTERS/Kim Kyung-Hoon 2/2

By Koh Gui Qing

NEW YORK (Reuters) - U.S. shares slipped on Tuesday in choppy trade, as investors waited for businesses to report how rising prices have hit their latest earnings, while bond yields spiked and the dollar shone on bets that monetary policy will soon be tightened.

Indeed, two U.S. Federal Reserve policymakers said on Tuesday that the central bank has kept pace with a planned move to reduce its bond buying program, cementing expectations that the Fed will start withdrawing its crisis-era stimulus as soon as next month.

Soaring oil prices largely held on to recent gains, while U.S. stock indices vacillated repeatedly between modest gains and losses before a flurry of third-quarter bank earnings reports from Wall Street on Wednesday and Thursday.

After watching oil prices steadily gallop higher in the past 18 months, many investors now worry that rising prices are exacerbating supply bottlenecks, weighing on businesses and crimping economic growth.

Coal prices are at a record peak, and while gas prices are off recent highs, they remain four times higher in Europe than at the start of the year.

The impact of supply crunches in power and manufacturing components is showing up in data - figures on Tuesday showed Japanese wholesale inflation hit 13-year highs last month, British shoppers slashed spending, China recorded a 20% drop in car sales, and bottlenecks dragged German economic sentiment down for a fifth month.

"We are in a sort of a holding pattern until we see the results," said Peter Kenny, founder of Kenny’s Commentary LLC and Strategic Board Solutions LLC in New York.

"We are seeing some downgrades on U.S. growth, and the impact on businesses 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 dropped 0.14%.

The pan-European STOXX 600 index lost 0.07% and MSCI's gauge of stocks across the globe shed 0.31%.

Oil prices were mostly steady. U.S. crude was little changed at $80.50 per barrel, while Brent crude rose above $84 a barrel briefly before shedding 0.5% at $83.27.

With businesses hit by persistent supply chain disruptions and inflation pressures, the International Monetary Fund warned on Tuesday that the global economy's recovery from the COVID-19 pandemic is being constrained, and cut growth outlooks for the United States and other major industrial powers.

Given rising expectations that accelerating inflation will prompt central banks such as the Fed to rein in ultra-loose policies, benchmark bond yields rose in anticipation of tighter monetary conditions.

Two-year Treasury yields, which have climbed as much as 100 basis points in October along, jumped to 0.3419%, a level last seen in March 2020.

In keeping with concerns that soaring prices could crimp economic activity and prompt central banks to raise interest rates down the road, the yield curve flattened, and benchmark 10-year yields retreated to 1.5751%, from 1.605% late on Friday.

Treasury yields https://fingfx.thomsonreuters.com/gfx/mkt/lbvgnonqlpq/Pasted%20image%201633986113887.png

All those concerns, alongside rising Treasury yields, supported demand for the dollar. The dollar index stayed at one-year highs and stood near a three-year peak against the yen.

The dollar index rose 0.149%, and a stronger dollar nudged the euro down 0.27% to $1.1526. The Japanese yen weakened 0.31% versus the greenback to 113.62 per dollar.

Gold, usually seen as a hedge against inflation, shone on Tuesday despite dollar strength.

Spot gold added 0.3% to $1,759.85 an ounce. U.S. 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 https://fingfx.thomsonreuters.com/gfx/mkt/egpbkmyoovq/Gas%20CO2%20and%20coal%20rebased%20to%20the%20start%20of%20the%20year.jpeg

Stagflation woes hit U.S. stocks; 2-yr Treasury yield jumps
 

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Comments (14)
Nordin Mohamad
Nordin Mohamad Oct 12, 2021 5:37PM ET
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good for history lesson
James Pattison
James Pattison Oct 12, 2021 2:30PM ET
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Inflation hits the poorest the hardest… democrat policy hard at work here…
Dave Jones
Dave Jones Oct 12, 2021 12:10PM ET
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everything is awesome! dow is up!
Jm Vm
Jm Vm Oct 12, 2021 9:00AM ET
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I lived through the 70's stagflation. Jobs were scarce and costs soared. Only double digit interest rates finally solved the problem. Free money isn't the cure-all many think it is. Everyone should experience stagflation at least once in their life to be taught a lesson that unfortunately will be repeated by the next generation. lol!
Simon Meszaros
Simon Meszaros Oct 12, 2021 9:00AM ET
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like
Jokers R Us
Jokers R Us Oct 12, 2021 9:00AM ET
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there will not be double digit interest rates everything would collapse, we would not be able to afford paying the interest on the debt let alone the principle.  Stagflation will turn into hyperinflation.
maher asakere
maher asakere Oct 12, 2021 5:41AM ET
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We are in a stagflation right now, but greed will not allow it
Bipin Kochar
Bipin Kochar Oct 12, 2021 3:18AM ET
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While the impact of the Evergrande situation has a limited impact on global markets, the energy crisis caused by severe under-investment in crude and coal production is causing energy prices to soar due to the aggressive production cuts imposed by OPEC+.This can only be addressed if US takes the initiative in boosting production of oil thru fast track approvals and incentives as fed rate has negligible impact on oil prices.
Mike Wellons
Mike Wellons Oct 12, 2021 3:18AM ET
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Or, step up investment in alternative energy sources to lower the burden on coal and oil. Also, reduce energy consumption through efficiency and new technologies. Probably need an overall approach, not just ramp up fossil fuel production.
Tom Sc
Tom Sc Oct 12, 2021 3:18AM ET
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the problem with that is that US shale is capital intensive# saudis can ramp up production anytime and make a ***with $50 oil while shale would get decimated again
perplexed76 .
perplexed76 . Oct 12, 2021 2:14AM ET
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oil always reaches abnormal levels before total collapse
Jokers R Us
Jokers R Us Oct 12, 2021 2:14AM ET
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Time to sell my house?
Mike Peters
Mike Peters Oct 12, 2021 2:14AM ET
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A couple years ago they were giving it away
Peter Bozich
Peter Bozich Oct 12, 2021 2:09AM ET
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Gold has been consolidating for a long time, will be interesting where it goes price wise when it gets going
Matt Novakovich
Matt Novakovich Oct 12, 2021 2:09AM ET
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gold will go up but careful, gold stocks typically crash as well just when you think it's a hedge. I lost 300k in first majestic, and coure mining. the pain is real
Miriam Morkhul
Miriam Morkhul Oct 12, 2021 2:09AM ET
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Not that i own those but what do you mean "lost"? Gold and silver are in a long term positive trend.
Jokers R Us
Jokers R Us Oct 12, 2021 2:09AM ET
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Matt Novakovich mining stock pain is real but we're at a bottom right now I think, and hope.
Darrell Peterson
Darrell Peterson Oct 12, 2021 2:00AM ET
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This has been A Central Bank MMT scam for over a Quarter Century but it always amusing that the low information Neanderthals make it a Right v.s. Left contest .
Rodney Dangerfield
Rodney Dangerfield Oct 12, 2021 1:39AM ET
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don't worry everyone once you get rid of your physical money for cryptocurrency then watch the energy crisis with the power switch flipped off guess you people better learn how to draw Bitcoin...lol
James Pattison
James Pattison Oct 12, 2021 1:39AM ET
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Crypto markets are the best thing for green energy… youre incorrect
William Smith
William Smith Oct 12, 2021 12:50AM ET
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Biden and the world's leftists gift to the people.
Jm Vm
Jm Vm Oct 12, 2021 12:50AM ET
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Proud to show the world what ignorance truly is. Were you there on Jan 6th when the cult attacked our democracy in their failed coup for the fat golfer or just cheering from the sidelines? sheesh!
Anthony Crowley
Anthony Crowley Oct 12, 2021 12:50AM ET
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Let's keep the discussion to finance and leave the politics to another forum.
Jm Vm
Jm Vm Oct 12, 2021 12:50AM ET
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Jokers R Us Don't you have a cult rally to attend where lies attacking our democratic republic are regurgitated, no different than the Jan 6th attack on our Nation by less than bright supporters of the fat golfer's big lie?
Jack Zydron
Jack Zydron Oct 11, 2021 11:57PM ET
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inflation will die in next few weeks. we are slowing down for winter.
Lars Hellman
LarsH Oct 11, 2021 11:57PM ET
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Is that you Jerome?
Matt Novakovich
Matt Novakovich Oct 11, 2021 11:57PM ET
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Rafał EN
Rafał EN Oct 11, 2021 11:34PM ET
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Gold, usually seen as a hedge against inflation - ITS a lye. Gold isn't, very poor knowledge.
Joel Schwartz
Joel Schwartz Oct 11, 2021 11:12PM ET
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Crude jumped $14 in a month. That’s pretty worrying, yeah.
John Healy
John Healy Oct 11, 2021 11:12PM ET
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It sure is, particularly because of oil’s effect on the entire global supply chain. The government can exclude energy when calculating inflation, but they can’t do anything about the associated rise in the cost of goods and services.
Bill Ackman
Bill Ackman Oct 11, 2021 11:12PM ET
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Low oil price of Oct 2014-Oct 2021 are over
Matt Novakovich
Matt Novakovich Oct 11, 2021 11:12PM ET
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bingo
James Andrews
James Andrews Oct 11, 2021 11:12PM ET
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Xiden has to make gas expensive to sell his awful EVs..
 
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