Stocks up as inflation pulls forward rate hike bets, dollar subdued

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SINGAPORE (Businesshala) – World stock markets rallied and longer-term bonds rose on Thursday as investors believed rising inflation would drive rates higher around the world.

FILE PHOTO: A man wearing a protective face mask, amid the coronavirus disease (COVID-19) outbreak, looks at the electronic board displaying Japan’s Nikkei index outside a brokerage in Tokyo, Japan September 24, 2021. Businesshala / Kim Kyung-hoon

The dollar further depreciated from the 2021 high, having risen earlier in the week.

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Europe’s STOXX 600 index climbed to its highest point of the month as it opened up 0.6%. London’s FTSE and the DAX and CAC40 in Frankfurt and Paris were all doing well, and Wall Street futures also gained 0.5%.

MSCI’s index of Asian shares outside Japan rose 0.5%. Japan’s Nikkei rose 1.4%. The broader index was flat on property stocks in Shanghai, while markets in Hong Kong were closed for a holiday. [.T]

China provided the latest sign of surging price pressure through supply chains, as data showed annual producer prices rose at their fastest pace on record in September.

Then data on Wednesday showed policymakers’ growing concern about inflation, along with minutes from September’s Federal Reserve meeting showing another solid rise in US consumer prices last month.

The market reaction has been to bet that central bankers are forced to raise rates sooner rather than later, but they sit on their hands for a while. Fed funds futures are slated for a 25 basis point hike next September, brought forward through the end of 2022, but pricing also shows that rates hover around just 1.5% over five years’ time. .

Analysts at TD Securities said, “The market continued to push forward pricing of first rate hikes, while also lowering terminal rate pricing, which we believe is a reflection of market pricing in a policy blunder.”

Short-term Treasury yields rose, while long-term yields fell, flattening the curve. Gold remained stable on Wednesday after enjoying the best session of seven months. Bitcoin, sometimes seen as an inflation hedge, gained 1.5% to a five-month high of $58,550.

Long-term yields in Asia also fell and the dollar, which rallied through September, then pulled back sharply with a fall in long-term Treasury yields, widening the deficit slightly.

Later in the day traders await the appearance of Bank of England and Federal Reserve policymakers, along with data on US producer prices and jobless claims.

Earnings reports are also scheduled from Bank of America, Wells Fargo, Morgan Stanley and Citi.

policy focus

In addition to removing the reference to Fed members “generally” hoping to ease inflationary pressures, last month’s minutes also agreed that asset purchases would begin soon.

Central banks elsewhere are also seeking time on pandemic-era policy support. Singapore’s central bank unexpectedly tightened monetary policy on Thursday, citing high inflation forecasts.

In Australia, declining employment data and a central bank official’s comments about sluggish wages have not derailed recent market bets on a rate hike starting next year.

The swap markets are expected to increase in price by about 90 basis points by the end of 2023, although the Reserve Bank of Australia is unlikely to push for any increases before 2024.

Currency markets were quite calm on Thursday after the dollar’s fall on Wednesday – the biggest fall on the euro in five months.

The euro rose to $1.1601 in Asia while the sterling, Australian dollar and New Zealand dollar added little to Wednesday’s gains.

Oil futures in commodities were trading comfortably above $80 a barrel on Thursday, with US crude at $81.09 a barrel and Brent at $83.88. [O/R]

Gold edged higher overnight at $1,792 an ounce. [GOL/]

The 10-year Treasury yield sat at 1.5491% after falling three bps overnight and the two-year yield rose marginally to 0.356% after rising 1.8 bps overnight.

Reporting by Tom Westbrook; Editing by Edwina Gibbs and Muralikumar Anantharaman

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