Stocks and bonds fall as energy prices continue to climb alarmingly around the world, adding to inflation concerns.
Stocks start the week in risk mode, as sellers are out in the bond markets as yields rise – the yield on 10-year U.S. Treasuries is back at 1.6% on bets that central banks will have to start raising rates much sooner than they would like.
Bank of England Governor Andrew Bailey, in comments to an online conference yesterday (Sunday, October 17), made his boldest statement yet by reversing the transitory stance on inflation .
In a departure from that previous position, he said on Sunday that inflationary pressures “will last longer and will of course enter annual figures longer as a result.”
After a weak end last week, the Dollar Index (DXY) is trading higher today at 94.124 as Treasury yields strengthen.
BoE Bailey on inflation: “this is another signal that we will have to act”.
Adding to other recent comments on the need to take action against inflation as soon as possible, Bailey was frank, explaining that the energy price situation meant “raising fear and fear for central banks. concern about built-in expectations. This is why we at the Bank of England have signaled, and this is another signal, that we will have to act. But of course, this action takes place at our monetary policy meetings. “
The governor’s remarks follow an equally shrill tone from monetary policy committee hawk Michael Saunders last week.
Traders now expect the Bank of England to hike rates up to 1% by August next year, from 0.1% today.
However, there are now concerns that central bankers could make a serious policy error, either by raising too quickly or not raising enough in the short term, forcing them to take more drastic action later.
Adding to nervousness over inflation, news from New Zealand that second-quarter price hikes rose from an annual rate of 3.3% to 4.9%, topping 4.2% predicted by economists.
ASB Bank of New Zealand senior economist, commenting on the data, said: “We can now see annual CPI inflation exceed 5% by the end of this year.”
Crude oil prices will continue to recover, with West Texas Intermediate trading at 82.66, its highest level since 2014 and Brent Crude near $ 86.
China’s GDP growth rate is declining
China’s GDP data added to the gloom, with inflation slowing to its lowest rate in a year at 4.9% in the third quarter. This compares to 7.9% in the second quarter through June. China is also grappling with significantly higher energy prices, especially in the coal market where up to 70% of the country’s energy production comes from.
Producer price inflation in China is 10.7%, the highest since 1995, fueled by energy price inflation but also by bottlenecks elsewhere in the economy that are causing price increases in other products and hamper production due to shortages and disrupted supply chains. Yesterday, 95 ships lined up to enter Shenzhen, a sign of congestion affecting China and the world’s major ports.
El-Erian: Fed must end asset purchases, higher volatility to come
In remarks to Fox News on Sunday, respected commentator Mohamed El-Erian and chief economic adviser at Allianz and the president of Queens’ College Cambridge thinks it’s time for investors to prepare for the volatility to come. âI’m a little worried that this wonderful world we live in with low volatility, whatever increases, may end with higher volatility,â said El-Erian, chief economic adviser at Allianz SE and president of Queens’ College, Cambridge, said on “Fox News Sunday”.
He believes the US Federal Reserve must step down to continue to stimulate financial markets. the Fed “should ease the ironclad monetary stimulus,” El-Erian said.
Stocks and bonds are riding a wave of liquidity – but waves tend to break
âIf I were an investor, I would recognize that I was riding a huge wave of liquidity thanks to the Fed, but I would remember that waves tend to break at some point, so I would be very carefulâ, a- he warned.
He warned that with higher prices we will see “at least another year of high and persistent inflation.”
âThings will get worse before they get better. So we’re going to have more commodity shortages. We are going to have higher prices. Inflation will remain at the 4 to 5% level.
Inflation will be less transient, Bitcoin rallies to $ 62,000
El-Erian’s thoughts on high inflation lasting longer than expected were echoed by Andrew Ticehurst, strategist at Nomura Holdings. “The global theme is that higher inflation is likely to be less transient than expected in a context of high commodity prices.”
The bright spots for investors were found in energy-focused stocks, with shares of oil and gas companies rising in Europe.
Less risk averse investors will also follow the progress of bitcoin which has accelerated its recent rally, as market participants believe that a bitcoin futures ETF will likely be approved by the US SEC today tomorrow. Currently priced at $ 61,814, the leading crypto is approaching its all-time high of $ 64,800.