Stocks Rise As Inflation Fears Subside, But The Dollar Falls

Stocks Rise As Inflation Fears Subside

Key point:

  • Treasury bond yields straightens; dollar rise stops 
  • Fed speakers, U.S. bank results, and PPI data to be released 
  • China manufacturing sector inflation reaches new highs 
  • Oil and gas prices are rising once more
  • The stock markets around the world are rising.

World markets remained focused on increasing inflation as tech stocks revived global equities, oil and gas prices soared, but the dollar and benchmark government bond yields remained stuck.

The pricing stress theme was also very much active overnight, but the response from traders was more complex, despite stronger-than-expected U.S. CPI readings on Wednesday.

The dollar, which has been pushed to a more than one-year high this week by rising expectations on a 2022 rate hike in the United States, has dropped for the second day in a row, along with the 10-year US Treasury yield, which tends to drive global borrowing costs.

The STOXX 600 index (.STOXX) in Europe also hit a new high for the month, as investors shrugged off recent caution. Futures on Wall Street rose 0.5 percent ahead of additional inflation data and big bank earnings later in the day.

“Inflationary consequences of oil prices will be examined by central banks,” stated Kiran Ganesh, head of multi assets for UBS Global Wealth Management.

“Individual (central bank) governors are looking a little more cautious, but we are not expecting to see significant rate hikes,” Ganesh continued, predicting that the situation would not devolve into stagflation, or excessive inflation, and a stalled economy.

Overnight, MSCI’s benchmark index of Asian shares (.MIAP00000PUS) rose 0.6 percent, its sixth gain in six sessions. Although China’s property company shares had experienced additional losses in Shanghai as the Evergrande issue remained to rattle, Japan’s Nikkei (.N225) rose 1.4 percent.

The foreign exchange and commodity markets were giving contradictory messages. Gold, which is frequently used as a hedge against increasing inflation, has leveled out after having its best day in seven months on Wednesday.

Brent crude oil was pushed back near $85 a barrel by oil bulls. Natural gas rose 2% after soaring more than 150 percent this year, contributing to the global energy price surge. Bitcoin has risen to a five-month high of $58,550, making it a popular inflation hedge.

The dollar also fell to a nine-day drop, enabling the euro, British pound, Australian, and New Zealand dollars to recover their losses.

The dollar hit a more-than-year peak on Tuesday on desires that the US Federal Reserve would toughen monetary policy more rapidly than previously thought, but it is already down for the month.

Initial unemployment claims and producer value inflation data from the United States will be released later in the day. Bank of America (BAC.N), Wells Fargo (WFC.N), Morgan Stanley (MS.N), and Citigroup (C.N) are all set to release earnings reports (C.N).

“It appears to be a typical example of buy the rumour, sell the fact,” stated Neil Jones, Mizuho’s head of FX sales. “I believe the Fed validated the predictions of many investors who had long dollar bets.”

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