Stocks and bonds remain broadly stable as traders wait for US retail data
Equity, bond and currency markets struggled to move on Tuesday, as traders refrained from betting ahead of US retail sales data that could reignite concerns over rate persistence high inflation.
The European regional stock index Stoxx 600 rose 0.2%, hitting its latest record as a rally in energy stocks added to gains in a better-than-expected quarterly earnings season.
The FTSE 100 in London fell 0.1% and the futures contracts following the Wall Street S&P 500 index remained stable.
Later on Tuesday, U.S. retail sales data will provide more clues to the strength of the world’s largest economy and may firm up market expectations for when the Fed will raise interest rates for the first time, after keeping them close to zero in March 2020.
Economists polled by Reuters expect sales to rise 1.4% in October from the previous month, amid strong household savings, recovering demand and the rush for gifts from Christmas to alleviate supply chain shortages.
“The stronger the outlook for consumers, the more pressure there will be for inflation,” said Gergely Majoros, member of the investment committee of European fund manager Carmignac.
“We believe that the inflation cycle in the United States will be longer than [is being] prices and expected by markets and central banks.
Stock investors had mainly estimated that the inflationary shocks that propelled the annual rate of increase in consumer prices to a 30-year high of 6.2% last month would fade as post-pandemic economies shrink. would normalize.
However, fears of more prolonged inflation could push prices down and raise yields on longer-term U.S. government bonds, Majoros added, putting pressure on stock valuations which tend to fall when yields on stocks. low risk assets are increasing.
The benchmark 10-year Treasury bill yield, which was flat at 1.616% on Tuesday, has remained relatively stable in recent weeks. The two-year Treasury yield, which tracks short-term monetary policy expectations, fell from around 0.4% ahead of last Wednesday’s US Consumer Price Report to 0.53%.
Traders also bought US dollars to position their portfolios to benefit from an increase in interest rates.
The dollar index, which tracks the US currency against six others including the euro and yen, held its highest level in 16 months on Tuesday.
Elsewhere, the pound sterling rose 0.4% against the dollar to $ 1.345, as bets in the Bank of England market increased borrowing costs. BoE Governor Andrew Bailey told the House of Commons Treasury Committee “the job market looks tight” and was “very worried about the inflation situation”, ahead of the data on UK consumer prices on Wednesday.
In Asia, the Hong Kong Hang Seng stock index rose 1.1% as investors cheered on what appeared to be a cordial discussion between US President Joe Biden and Chinese leader Xi Jinping. In a rare virtual meeting, Biden urged Xi not to allow competition between the two economic powers and closely related business partners to “turn into conflict” and “be clear and honest where we disagree. and to work together where our interests intersect ”.