US stocks decline after shock inflation report - BNN

U.S. equities recovered earlier losses on data that showed consumer prices had accelerated at the fastest pace since 1990, adding to evidence of building inflationary pressures. 

The S&P 500 was little changed after declining as much as 0.5 per cent. However, losses in Treasuries remained with a flattening in the yield curve. The dollar climbed, Bitcoin surged past US$68,000 and gold jumped to the highest since June.

Risks are building for both stocks and bonds as persistent elevated inflation could force the Federal Reserve to taper at a more substantial rate or hike interest rates faster than anticipated. The U.S. consumer price index increased 6.2 per cent in October from a year earlier, beating expectations for 5.9 per cent, according to Bloomberg data. 

“Now that it’s breached that 6 per cent level, I think the Fed are going to be getting a little bit hot under the collar,” Fiona Cincotta, senior financial markets analyst at City Index, said by phone. “There is no way, I think, they can ignore 6.2 per cent on that CPI reading. It’s going to be prompting a more hawkish feel.”

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. Still, traders worry the latest figures may be enough to compel the Fed to raise rates as soon as June 2022 when it has finished tapering its assets-purchase program.

“I expect lots of eyeballs were bulging out of their sockets when they saw the number come in,” said Seema Shah, chief strategist at Principal Global Investors. “Inflation is clearly getting worse before it gets better, while the significant rise in shelter prices is adding to concerning evidence of a broadening in inflation pressures.”

The U.S. five-year breakeven rate on Treasury inflation protected securities rose to a record. Meanwhile, the yield on the two-year Treasury note rose eight basis points to 0.50 per cent, while that of the 10-year gained six points and the 30-year added almost two points. 

“A flattening curve does not portend well for risk assets into next year,” said Cliff Hodge, chief investment officer for Cornerstone Wealth. “The bond market is telling you that the Fed is way behind the curve on policy, as short rates rocketed while long rates have taken the release in stride.”

Oil swung between gains and losses as a U.S. government report forecast oversupply next year. Iron ore tumbled on dimming prospects for steel demand owing to China’s real-estate troubles. And equities were higher in Europe and Hong Kong, and lower in Japan, China and Australia.  

Stocks

• The S&P 500 was little changed as of 10:23 a.m. New York time
• The Nasdaq 100 fell 0.2 per cent
• The Dow Jones Industrial Average fell 0.1 per cent
• The Stoxx Europe 600 rose 0.2 per cent
• The MSCI World index fell 0.1 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.3 per cent
• The euro fell 0.5 per cent to US$1.1537
• The British pound fell 0.4 per cent to US$1.3504
• The Japanese yen fell 0.7 per cent to 113.70 per dollar

Bonds

• The yield on 10-year Treasuries advanced six basis points to 1.49 per cent
• Germany’s 10-year yield advanced three basis points to -0.27 per cent
• Britain’s 10-year yield advanced six basis points to 0.88 per cent

Commodities

• West Texas Intermediate crude fell 0.6 per cent to US$83.64 a barrel
• Gold futures rose 1.6 per cent to US$1,860.30 an ounce

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US stocks decline after shock inflation report - BNN
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