Global stocks extend losses ahead of US inflation report

Global equities extended losses into a seventh session on Thursday ahead of a widely-anticipated US inflation report, which investors will scour for clues as to how far the US Federal Reserve may hike interest rates further.

A FTSE measure of global equities slipped 0.2 percent in early London trades, while Europe’s regional Stoxx 600 fell 0.3 percent and Hong Kong’s Hang Seng index fell 1.6 percent. Futures contracts, which track Wall Street’s S&P 500, gained 0.1 percent.

The muted moves came ahead of the release of the closely watched US CPI for September. Economists polled by Reuters are forecasting an 8.1 percent rise, which would mean a slight easing in August’s annual inflation rate of 8.3 percent.

Market participants have been scrutinizing reports of price growth and jobs in the world’s largest economy for signs of how far and fast the Fed and its international peers will tighten monetary policy. Fears have increased this year that rate-setters will turn the screws on a protracted slowdown.

The Fed has already hiked the cost of borrowing by 0.75 percentage points at its last three meetings and raised its benchmark interest rate to a range of 3 to 3.25 percent. Markets are pricing in expectations of a fourth straight rise of a similar magnitude.

Minutes from the Fed’s September monetary policy meeting, released late Wednesday, showed the central bank was concerned about doing “too little” to curb rising inflation.

A Producer Price Index report released earlier in the session did little to allay concerns about persistent inflationary pressures, returning 8.5 percent for the year to September, down from 8.7 percent in August but above the expectations of 8.4 percent.

The equity and bond markets have come under severe pressure this year, weighed down by rising interest rates and the prospect of monetary policy tightening even further.

Higher borrowing costs have hampered the appeal of more speculative stocks that were winners earlier in the coronavirus pandemic and hurt their projected cash flows, which are typically modeled into the future. The tech-heavy stock index Nasdaq Composite has fallen by a third this year.

US Treasury yields rose on Thursday as prices fell across all maturities. The benchmark 10-year Treasury yield rose 0.03 percentage point to 3.93 percent.

Gilt markets were more resilient in early trading after suffering large swings in the previous session. The UK 10-year bond yield was unchanged at 4.43 percent, while the 30-year bond yield, which was the focus of the Bank of England’s intervention to stabilize gilt trading in late September, rose 0.07 percentage point to 4. 83 percent gave way.

UK bonds have shaken in recent weeks following the September 23 unveiling of Westminster’s ‘mini’ budget, which included large tax cuts that were to be paid for in large part by borrowing. The historical moves in gilt yields, in turn, created a crisis for pension funds that adopt liability-driven investment strategies, driving them into a vicious cycle of forced asset sales. Global stocks extend losses ahead of US inflation report

Adam Bradshaw

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