Stocks guarded ahead of U.S. inflation test

World shares steadied near record peaks on Monday as risk assets found support from an upbeat U.S. October payrolls report, but they face another test later in the week from a reading on U.S. inflation.

The U.S. congressional passage of a long-delayed $1 trillion infrastructure bill also cheered investors, helping crude prices extend their rally, though a broader social safety net plan remains elusive.

Data out over the weekend also showed China’s exports beat forecasts in October to deliver a record trade surplus, although a miss on imports added to evidence of a slowing in domestic demand.

Moves across equities were modest with the pan-European STOXX 600 benchmark index little changed in early afternoon trade, while the MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.2%.

Nasdaq futures eased around 0.1% after 10 straight sessions of gains, while Tesla shares were set to fall over 5% after Twitter users voted for CEO Elon Musk to sell about 10% of his stock in the company.

S&P 500 futures rose less than 0.1%.

World shares were up less than 0.1% at 757.5 points by 1301 GMT after hitting a record high last week as relatively dovish central bank messages and the strong labour data in the United States added to optimism generated by a healthy earnings season on both sides of the Atlantic.

Friday’s robust U.S. payrolls report included upward revisions to the previous couple of months and another strong reading on wages.

Tightness in the labour market combined with dislocation in global supply chains should result in another high reading for U.S. consumer prices due on Wednesday, with any upside surprise likely to rekindle talk of an earlier Federal Reserve hike.

“Either we are in a sort of temporary high inflation patch and we will get back to normal on inflation, in which case there is a positive growth outlook. Either … we are on the brink of an inflation problem and we may look back in six months time and say central banks were behind the curve,” said Sarah Hewin, senior economist.

“That will mean there is potential for more aggressive policymaking and rate hikes coming faster than markets expect. So it’s understandable why there is sense of uncertainty in markets,” she added.

No less than six Fed officials are speaking on Monday, with the most attention likely on Vice Chair Richard Clarida who is talking on Fed and ECB policy. On Friday Kansas City Fed President Esther George said the risk of a prolonged period of elevated inflation had increased, and that the argument for patience had diminished.

After some wild swings, Treasuries still managed to end last week with a rally, thanks partly to a huge drop in UK bond yields where short-dated debt enjoyed its best week since 2009 after the Bank of England skipped a chance to hike.

That led the market to push out the likely timing and pace of tightening not just there, but in Europe and the United States too. Fed Funds now have a rate rise fully priced by September 2022, instead of July, a second not until February 2023 instead of December 2022.

Yields on 10-year Treasuries dived 10 basis points last week and were last up 2.7 bps at 1.482%. European bond markets were calmer after last week’s roller-coaster ride with Germany’s 10-year yields up 2.1 bps at -0.259%.

The drop took a little steam out of the dollar, which had hit a more than one-year high after the payrolls data. The dollar index was last down 0.05% at 94.180, down from a top of 94.634 hit on Friday.

Still, the BoE’s shock decision left sterling down 1.4% over last week and on Monday it was last up 0.26% at $1.353, while the euro was up 0.10% at 1.1577, above last week’s 16-month trough.

The dollar was also trying to sustain its bull run on the Japanese yen at 113.42, above support around 113.25.

The retreat in bond yields was a boon for gold, which offers no fixed return, and lifted it to as high as $1,821.26 an ounce on Monday before turning flat on the day.

Cryptocurrencies, which like gold pay no coupon and are seen as a possible hedge against inflation, saw ether hit a record peak and bitcoin jumping to a three-week high.

Ether – which underpins the ethereum network – hit a record top of $4,768.07 and was last up 2.6% on the day, while bitcoin rose 4% to $65,851.

Oil prices firmed as the passage of the U.S. infrastructure bill and China’s export growth supported the outlook for energy demand, while Saudi Arabia’s state-owned producer Aramco raised the official selling price for its crude.

Brent rose 0.8% to $83.36 a barrel, while U.S. crude gained 0.8% to $81.94.

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