GLOBAL MARKETS-Rising yields lift dollar as oil surges

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* Graphic: World FX Rates

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* US Stock Futures Cross Losses, Nikkei Supported by Yen Drop

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* Oil moves energy complex higher, raising inflation risk

* Dollar hits highest level on yen since late 2018

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LONDON/SYDNEY, Oct 11 (Businesshala) – World stocks rose on Monday on gains in China, while rising Treasury yields pushed the dollar to a near-three-year peak against the Japanese yen.

Brent oil prices extended their bull run to reach the ground last seen in late 2018, with inflationary concerns in the energy complex rising.

“High energy prices, shortages will inevitably make their way through global value chains in the form of rising prices and potential shortages of industrial and consumer goods,” said OANDA analyst Jeffrey Haley.

“All of this is fueled and hollowed out by constant condemnation from central bankers around the world about the ‘temporary’ ring of inflation.”

Inflation shocks kept investors cautious, with the euro STOXX 50 down 0.2%.

Nasdaq futures and S&P 500 futures were down 0.4% and 0.3%, respectively.

The MSCI World Equity Index, which tracks stocks in 50 countries, was up 0.1%.

Sentiment in China was partially helped by planned supportive measures by some cities for the troubled property market.

China’s blue-chip CSI300 index rose 0.1%, while MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.6%.

The decline in the yen provided a welcome boost to Japan’s Nikkei, which reversed early losses and extended 1.6%.

The US earnings season begins this week and is likely to bring stories of supply disruptions and rising costs. JP Morgan reported on Wednesday, followed by BofA, Morgan Stanley and Citigroup on Thursday, and Goldman on Friday.

US inflation, retail sales

The focus will also be on US inflation and retail sales data and minutes from the Federal Reserve’s last meeting, which should confirm that November’s tapering was discussed.

“The coming week will be centered around the US CPI release on Wednesday, but it could be a backward-looking touch as energy has recently risen and after a summer drop, used car prices are again in March which is likely Will be captured in this week’s release,” Deutsche Bank’s Jim Reid wrote in a note to customers.

While Friday’s headline US payroll number was disappointing, it was partly due to reopening problems in state and local education, while employment in the private sector remained strong.

In fact, labor shortages reduced the unemployment rate to 4.8%, investors were more concerned about the risk of wage inflation and Treasury yields rose sharply.

The yield on 10-year notes was trading at 1.62%, the biggest increase of 15 basis points since March last week.

Germany’s 10-year Bund yield hit its highest level since May, rising more than 2 basis points to -0.117%.

British gilt yields rose sharply in line with the 10-year yield since May 2019 following comments from Bank of England policymaker Michael Saunders over the weekend that households should prepare for rate hikes “quite early” because Inflationary pressure increases.

Money markets moved from the European Central Bank to a full 10-basis-point rate hike by the end of 2022.

Analysts at BofA warned that energy costs would pick up the pulse of global inflation, with oil potentially above $100 a barrel amid limited supply and strong reopening demand.

The winners in such a scenario would be real assets, real estate, commodities, volatility, cash and emerging markets, while bonds, credit and stocks would be negatively affected.

BofA recommended commodities as a hedge and noted resources accounted for 20-25% of the main equity indexes in the UK, Australia and Canada; 20% in emerging markets; 10% in the euro area, and only 5% in the United States, China and Japan.

The dollar was lowered as US yields outpaced those in Germany and Japan, hitting a high of 112.90 on the yen since the end of 2018.

The euro was hovering at $1.1571, having hit its lowest level since July last year at $1.1527 last week. The dollar index stood at 94.123, having climbed a recent top of 94.504.

The US currency and fixed income markets are closed on Mondays as a holiday.

A stronger dollar and higher yields have weighed on gold, which offers no fixed returns, leaving it at $1,756 an ounce.

US crude oil prices continued to climb to their highest level in nearly seven years after gaining 4% last week.

Brent jumped 1.7% to $83.75, while US crude rose 2.2% to $81.06 a barrel.

Editing by Simon Cameron-Moore, Jacqueline Wong and Alex Richardson


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