World markets stayed focused on rising inflation on Thursday as banks and tech rebooted global equities, oil and gas prices fired up again, but the dollar and benchmark government bond yields both stalled.
Record high Chinese factory gate inflation data overnight, ahead of U.S. producer figures later, meant the price pressure theme was very much alive, but the reaction from traders was looking more nuanced.
The dollar, driven to a more than one-year high this week by growing bets on a U.S. interest rate rise in 2022, eased for a second day in a row along with the 10-year U.S. Treasury yield, which tends to drive global borrowing costs.
Europe’s STOXX 600 index also climbed to its highest point of the month as investors there put aside recent caution. Wall Street futures added 0.5% too as analysts digested a blizzard of big bank earnings from Bank of America, Citigroup and Morgan Stanley.
“Our take is central banks are going to look through the inflationary effects of energy prices,” said Kiran Ganesh, head of multi asset.
“Individual (central bank) governors are sounding a bit more cautious but we are not going to see substantial rate hikes,” Ganesh added, predicting it wouldn’t end up morphing into stagflation – high inflation and stagnant growth – either.
Mega-cap growth names including Facebook, Microsoft, Amazon and Apple and Google all rose about 1% in pre-opening bell jockeying as their recent bounce looks set to continue.
MSCI’s main index of Asian shares gained 0.6% in its fifth rise in six sessions overnight too. Japan’s Nikkei climbed 1.4%, although China’s property company shares suffered more losses in Shanghai as the China Evergrande crisis continued to rumble.
Foreign exchange and commodity markets were sending some mixed signals. Gold, often seen as a hedge against rising inflation, steadied after enjoying its best session in seven months on Wednesday.
Oil bulls pushed Brent crude back towards $85 a barrel. [O/R] Natural gas climbed 2%, having already soared more than 150% this year, driving the spike in global energy prices. Bitcoin, also sometimes vaunted as an inflation hedge, rose to a five-month high of $58,550.
The dollar, meanwhile, pulled back to a nine-day low, allowing the likes of the euro, British pound, Australian and New Zealand dollars to all get back up.
Expectations the U.S. Federal Reserve will tighten U.S. monetary policy more quickly than previously assumed saw the greenback hit a more-than year high on Tuesday, but it is now down for October.
“There is a bit of a bounce for the euro, a bit more of a bounce for the pound and the biggest bouncer is the Kiwi dollar, so it’s a G10 FX beta rally,” said Kit Juckes, although he also flagged the latest record low for Turkey’s lira after the country’s President ousted another batch of central bankers.
U.S. initial jobless claims and producer price inflation data are also both due shortly, which will further feed the inflation and Fed rate hike debate.
“It seems to be a classic case of buy the rumour sell the fact type mentality,” said Neil Jones, about the dip in the dollar. “The Fed confirmed the expectations of many investors, I would suggest, holding long dollar positions.”