Global Markets View - Nov 11, 2021
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US
* U.S. stocks ended lower Wednesday (S&P500 down 0.8%, Nasdaq down 1.7%), extending Tuesday’s losses, after consumer price inflation jumped to the highest in three decades, thus sends Treasury yields sharply higher. The US 10-yr jumped to 1.55% and the Dollar Index strengthened 1%. VIX also rose 5% to 18.73.
* Bank stocks got a lift from the jump in bond yields as higher rates typically boosts profits. Bank of America ticked up nearly 0.8% and Wells Fargo gained 0.9%. Amazon-backed electric-vehicle maker Rivian Automotive Inc. made its debut on the Nasdaq Inc., rising 29%. Coinbase Global Inc. stock fell more than 8% after the cryptocurrency platform reported disappointing sales amid a summer slowdown in crypto trading. Disney missed Wall Street estimates across the board.
* The consumer-price index rose 0.9% in October, compared with expectations for a rise of 0.6%, fueled by continuing supply chain disruptions and higher food & energy prices. The core reading, which excludes volatile food and energy prices, rose 0.6% versus expectations for a 0.4% rise. Year over year, CPI rose 6.2%, a nearly 31-year high and more than triple the Federal Reserve’s 2% target. Both demand- and supply-side forces are behind the surge in US inflation this year. Generous fiscal transfers supported households’ balance sheets and supported greater spending on manufactured goods. Meanwhile, the pandemic disrupted global supply chains and hampered the ability of producers to respond to strong demand. The result is broad-based shortages and in turn, higher prices. Rising energy prices and wages have also contributed to higher inflation. The good news is that more supply should come back on line as activity gets back to normal.
* Following the CPI data, the Fed funds futures market now sees greater odds of the central bank’s first full rate hike coming in July 2022. However, Treasury Secretary Janet Yellen on Tuesday reiterated her view that elevated U.S. inflation won’t persist beyond next year and said the Fed will not allow a repeat of 1970s-style price rises. President Biden said reversing inflation is a top priority and asked National Economic Council to work to reduce energy costs and the Federal Trade Commission to push back on market manipulation in the energy sector in a larger push to reverse inflation.
* Labour market continues to remain strong. Applications for unemployment benefits fell by 4,000, to 267,000, in the week ended Nov. 6.
* Brent crude prices fell to $82.5. Gold continued its rise to $1,852 on the back of the high inflation print. Iron ore tumbled on dimming prospects for steel demand owing to China’s real-estate troubles. Bitcoin erased gains after hitting a record.
Asia
* Inflation is heating up In China too. PPI inflation accelerated from 10.7% to a 26 year high of 13.5% yoy, beating the anticipated 12.3% increase. Consumer prices rose 1.5% to a 13-month high, driven mainly by a jump in prices for food and fuel. Authorities are unlikely to tighten policy to tame inflation amid an economic slowdown. Instead, policymakers are likely to maintain a measured approach to stimulus as significant easing will only exacerbate supply side issues and push prices up further.
India
* Benchmark indices were back in the red on Wed, tracking weak cues from other Asian markets. Among sectors, realty and metal indices were down over 1% each, while buying was seen in the auto, pharma, and energy stocks. Metal stocks cracked due to China's curbs on its steel output and a worsening liquidity situation in the country's property sector. Broader markets were mixed with the midcap index down 0.5% while the smallcap index closed flat.
* The combination of a strong dollar, higher yields, and quicker normalisation could impact FII flows into India. We have seen FII outflow in Oct and FIIs continue to be net sellers in Indian equities in Nov till date.
Source: ABSLAMC Research