A shelf stocked with instant noodles at a Bangkok supermarket — inflation has surged around the world
Stocks slipped on Monday as investors await key US jobs data while girding themselves for a corporate earnings season many fear will highlight the impact of surging inflation and interest rates.
A report showing prices rose in the eurozone at a record pace last month added to concerns that central bank tightening has a long way to go, while Federal Reserve vice-chair Lael Brainard said US officials would not pull back too early.
Banks’ battle against inflation could also be made harder — particularly in Europe — as reports said OPEC and other oil producers are considering a major output cut owing to a plunge in prices caused by demand worries.
Crude prices jumped more than four percent in Asian trade ahead of the possible cut.
Sterling enjoyed a brief rally above $1.12 — having hit a record low $1.0350 last Monday — after UK finance minister Kwasi Kwarteng made a major U-turn by saying he had scrapped controversial plans to axe the top income tax rate.
The cut was part of a controversial mini-budget unveiled by Kwarteng last Monday, which sent markets spinning.
Kwarteng’s announcement came as the ruling Conservatives hold their annual conference with new Prime Minister Liz Truss facing growing anger within the party.
The pound briefly hit a high of $1.1281 before easing back again.
All three main indexes on Wall Street ended down Friday, registering a third straight quarter of losses for the first time since the global financial crisis in 2009.
The release of US jobs data on Friday will be closely watched, with a strong reading likely to give the Fed more ammunition to unveil a fourth successive bumper rate hike at its November meeting.
Asian equity markets fell at the start of the week.
Hong Kong fell, having at one point dropped below 17,000 for the first time since 2011, while Sydney, Mumbai, Bangkok, Singapore, Taipei, Jakarta and Wellington were also in the red.
Tokyo rose, however, even as the Bank of Japan’s Tankan survey showed confidence fell among the country’s largest manufacturers for the third straight quarter. Manila also rose.
London, Paris and Frankfurt all tumbled in the morning.
– Crude slide ‘likely over’ –
With inflation remaining elevated, there is little prospect that the pain will ease any time soon.
On Friday, Brainard said: “Monetary policy will need to be restrictive for some time to have confidence that inflation is moving back to target.
“For these reasons, we are committed to avoiding pulling back prematurely.”
The comments were in line with other Fed officials, who have indicated borrowing costs were unlikely to be lowered until late 2023 or 2024.
“Last week’s developments reinforced our expectation that we will see further tightening in financial conditions, but also illustrated the short-term two-way volatility, which will likely accompany it,” Citigroup’s Ebrahim Rahbari said.
At a time of rising real rates, volatility and the strong dollar “we therefore remain very bearish regarding the outlook for global risk assets”, he added.
Markets are now bracing for company earnings reports, with traders keeping a close eye on their forecasts in light of the uncertain rate environment.
Saxo Capital Markets analysts said in a note that there was a risk-off mood “as corporate earnings misses continue to raise the threat of an ugly earnings season ahead”.
Both the US benchmark West Texas Intermediate crude and Brent climbed more than four percent, as reports said major producers were discussing a million-barrel per day cut in output to support prices in the face of falling demand.
The reduction would be the biggest since the pandemic began, when crude prices collapsed, and would help staunch a plunge in the oil markets over recent months.
But OANDA’s Edward Moya said: “The slide in oil prices is likely over.
“Energy traders turned pessimistic over the summer given global slowdown fears, but now it seems the risks for oil are to the upside.”
And Suvro Sarkar, an energy analyst at DBS Bank, added: “It’s only going to be a matter of time before oil returns to $100 a barrel, especially with supplies set to tighten toward the end of the year.”
– Key figures around 0810 GMT –
Tokyo – Nikkei 225: UP 1.1 percent at 26,215.79 (close)
Hong Kong – Hang Seng Index: DOWN 0.8 percent at 17,079.51 (close)
Shanghai – Composite: Closed for a holiday
London – FTSE 100: DOWN 0.9 percent at 6,832.70
Pound/dollar: UP at $1.1211 from $1.1156 on Friday
Euro/dollar: DOWN at $0.9811 from $0.9802
Euro/pound: DOWN at 87.51 pence from 87.82 pence
Dollar/yen: UP at 145.00 yen from 144.80 yen
West Texas Intermediate: UP 4.5 percent to $83.06 per barrel
Brent North Sea crude: UP 4.4 percent to $88.83 per barrel
New York – Dow: DOWN 1.7 percent at 28,725.51 (close)
— Bloomberg News contributed to this story —
