Increase in global bond yields and stocks drop on Monday due to surging energy prices cemented worries about inflation and reinforced bets on policy tightening.
U.S. index futures fell, while crypto and mining companies advanced in pre-market trading. Tesla Inc. also rose. Meanwhile, consumer and retail shares led declines in Europe’s Stoxx 600, with luxury companies slipping on concerns about Chinese tax legislation. Shares in Asia were mixed as China’s economy slowed in the third quarter.
The global bond selloff gathered pace, with U.K. yields surging after Bank of England Governor Andrew Bailey warned on the need to respond to price pressures. Rate-hike bets have also picked up in the U.S., Australia and New Zealand, where inflation accelerated to the fastest pace in 10 years. Ten-year Treasury yields extended a climb to 1.6%. The dollar gauge rose.
Oil prices experience another surge, with West Texas Intermediate crude rising to the highest since 2014. Brent approached $86 a barrel. Russia is keeping a tight grip on Europe’s energy market, opting against sending more natural gas to the continent even after President Vladimir Putin said he was prepared to boost supplies.
Investors are tensed about the situation, worrying that energy shortages and supply-chain disruptions will drive up living costs in most economies. At the same time, the recovery remains patchy and central bankers are inching closer to paring back stimulus. U.S. consumer sentiment fell unexpectedly in early October, but retail sales advanced.
“We are starting to see some cracks in the transitory narrative that we’ve been hearing for quite some time,” Meera Pandit, global market strategist at J.P. Morgan Asset Management, said on Bloomberg Radio. “Rates will continue to ground higher from where we are. But I don’t think from a Fed perspective, when you think about the short end of the curve, that they are going to move much earlier than 2023. They are going to be a little bit more patient than the market expects right now.”
Mohammed El-Erian, the chief economic adviser at Allianz SE and a Bloomberg columnist, said investors should prepare for increased market volatility if the Federal Reserve pulls back on stimulus measures set in motion by the Covid-19 pandemic.
Meanwhile, Governing Council member Ignazio Visco said the European Central Bank should keep a high degree of flexibility in its post-crisis stimulus measures, including by buying more European-Union issued debt.
People’s Bank of China Governor Yi Gang said authorities can contain risks posed to the country’s economy and financial system from the struggles of China Evergrande Group.
Elsewhere, Bitcoin rallied back around $62,000 ahead of an anticipated U.S. exchange-traded fund debut on Monday.
(Except for the headline, this story has not been edited by The Finance World staff and is published from a syndicated feed.)
