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

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NEW YORK (Businesshala) – US stocks slid in choppy trade on Tuesday, as investors waited for reports from businesses on how rising prices affected their latest earnings, while bond yields rose and the dollar rallied. Bet that monetary policy will soon tighten.

Traders work on the floor of the New York Stock Exchange (NYSE) on October 12, 2021 in New York City, US. Businesshala/Brendan McDermid

Indeed, two US Federal Reserve policy makers said on Tuesday that the central bank is in sync with a planned move to reduce its bond buying program, reinforcing hopes that the Fed will continue as soon as next month. will begin to withdraw its crisis-era incentives.

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Oil prices surged on recent gains ahead of a flurry of third-quarter bank earnings reports from Wall Street on Wednesday and Thursday, while US stock indices repeatedly blanked out amid modest gains and losses.

After seeing oil prices steadily rise over the past 18 months, many investors now worry that rising prices are increasing supply constraints, putting pressure on businesses and crippling economic growth.

Coal prices are at record highs, and while gas prices are below recent highs, they are four times higher in Europe than at the beginning of the year.

The impact of supply shortages in electricity and manufacturing components is visible in the data – Japanese wholesale inflation hit a 13-year high last month, British shoppers cut spending, China cut car prices, data showed Tuesday Sales down 20%, and barriers dragged German economic sentiment weakens for fifth month

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

“We are seeing some deceleration on US growth, and the impact on businesses will be something to be seen.”

The Dow Jones Industrial Average fell 0.34%, the S&P 500 fell 0.24%, and the Nasdaq Composite fell 0.14%.

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The pan-European STOXX 600 index lost 0.07% and MSCI’s worldwide gauge of shares fell 0.31%.

Oil prices remained mostly stable. US crude was little changed at $80.50 a barrel, while Brent crude climbed above $84 a barrel, falling 0.5% to $83.27.

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.

Benchmark bond yields rose in anticipation of tighter monetary conditions on rising expectations that accelerating inflation would prompt central banks such as the Fed to rein in over-lax policies.

The two-year Treasury yield, which has climbed up to 100 basis points in October, rose to 0.3419%, last seen in March 2020.

In response to concerns that rising prices could dampen economic activity and prompt central banks to raise interest rates down the road, the yield curve has flattened, and the benchmark 10-year yield hit a low on Friday. Late retreated from 1.605% to 1.5751%.

treasury yield

All those concerns, along with rising Treasury yields, supported demand for the dollar. The dollar index hit a one-year high and was close to a three-year high against the yen.

The dollar index rose 0.149% and the euro fell 0.27% to $1.1526 as the dollar strengthened. The Japanese yen weakened 0.31% to the greenback at 113.62 per dollar.

Gold, generally seen as a hedge against inflation, shone on Tuesday despite the dollar’s strength.

Spot gold rose 0.3% to $1,759.85 an ounce. US gold futures rose 0.34% to $1,760.60 an ounce.

Gas, CO2 and coal missed out at the start of the year, showing percentage gains

Reporting by Sujatha Rao, Additional reporting by Julie Zhu in Hong Kong; Editing by Rachel Armstrong, Alex Richardson, Jane Merriman, Nick McPhee and Jonathan Otis

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