Stagflation risks hit U.S. stocks; 2-yr U.S. Treasury yield spikes

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NEW YORK/LONDON (Businesshala) – Signs that rising energy prices put a bearish on economic growth dragged on US stocks on Tuesday, while inflation and policy-tightening fears pushed US Treasury yields to an 18-month high. sent on.

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Oil prices rose further on Tuesday as Brent crude climbed above $84 a barrel. Coal has hit record highs and, while gas prices are below recent highs, they are four times higher in Europe than at the beginning of the year.

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The impact of supply crunch in power and manufacturing components is visible in the data – Japanese wholesale inflation hit a 13-year high last month, British shoppers cut spending, China sold cars, data showed Tuesday and the odds dragged the German economy sentiment down for the fifth month.

With businesses battered by persistent supply chain disruptions and inflationary pressures, the International Monetary Fund warned on Tuesday that the global economy’s recovery from the COVID-19 pandemic is being hampered, and growth woes for the United States and other major industrial powers. The outlook is being cut.

The Dow Jones Industrial Average lost just 0.05%, the S&P 500 0.09% and the Nasdaq Composite lost 0.21%.

The pan-European STOXX 600 index was down 0.23% and the worldwide gauge of MSCI shares fell 0.28%.

Oil prices eased, with Brent trading marginally higher at $83.66, up 0.01% on the day. US crude rose 0.26% to $80.73 a barrel.

Benchmark bond yields rose in anticipation of tighter monetary conditions on rising expectations that a pick-up in inflation would prompt central banks to tighten hyper-lax policies.

The two-year Treasury yield rose to 0.3459%, the last seen since March 2020, and 0.318% on Friday. The benchmark 10-year yield was little changed from 1.605% to 1.6031% late Friday.

“Markets had bought the message that inflation was transient and now they are questioning it,” said Sarah Hevin, senior economist at Standard Chartered.

“We believe that the current increase in costs is a headwind for activity and as such will limit the rebound of growth.”

All these concerns, along with rising Treasury yields, are keeping the bid for the dollar alive. Its index is slightly off its recent one-year high and is near a three-year high against the yen.

The dollar index rose 0.056%, down 0.08% to $1.1542, along with the euro. The Japanese yen weakened 0.27% versus the dollar at 113.63 per dollar.

Some analysts fear US data later this week could raise fears of stagflation if it shows the consumer price index above forecast and retail sales falling.

Standard Chartered predicted, “The dollar is a potential near-term winner from these results, with both rates and the risk environment dollar-supporting.”

Gold, generally seen as a hedge against inflation, shone on Tuesday despite the dollar’s strength. Spot gold rose 0.5% to $1,762.61 an ounce and US gold futures rose 0.43% to $1,762.20 an ounce.

Reporting by Sujatha Rao, Additional reporting by Julie Zhu in Hong Kong; Editing by Amelia Sithole-Mataris, Rachel Armstrong, Alex Richardson and Jane Merriman


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