Global stocks are flat as inflation and interest rate concerns creep into markets

LONDON/NEW YORK (Reuters) – Global stocks traded cautiously on Monday as market focus turned to U.S. inflation data for more clues on whether global interest rates have already peaked.

After two weeks of gains, MSCI’s gauge of global stocks (.MIWD00000PUS) was flat, and Wall Street’s benchmark S&P 500 stock index lost 0.27%. The Dow Jones Industrial Average was little changed, while the Nasdaq Composite Index fell by 0.4%.

The index is up about 5% so far this month, after a wave of risk aversion in October sparked by the outbreak of war between Israel and Hamas was cooled by bets that major central banks had ended a long string of interest rate hikes.

However, next week is full of market risk events, with consumer inflation and retail sales figures from the US on Tuesday and Wednesday respectively, likely to change the economic narrative.

“Momentum in the US remains strong and inflation could persist,” Barclays strategists said in a note to clients, warning against another rate hike by the Federal Reserve.

Economists polled by Reuters expect to see headline U.S. consumer price inflation slow to 3.3% in October from 3.7% the previous month, although the so-called core inflation rate that strips out volatile components remains unchanged.

Research house BCA also warned in a note to clients on Monday: “While a continued (stock) rally through the end of the year is certainly possible, it may be muted by bearish equity sentiment driven by geopolitical risks and heightened financial risks.”

This combination of concerns about rising interest rates and risk aversion helped push the dollar to a new one-year high against the yen on Monday.

Benchmark 10-year Treasury yields, which rise when rates fall, also touched a one-week high of 4.668% early in Monday’s session, as concerns about inflation reduced the appeal of fixed-rate debt instruments.

The dollar recorded 151.90 yen on Monday for the first time since mid-October last year, and is still hovering at 151.64 near those high levels at 1536 GMT. The dollar index, which measures the US currency against six other currencies, settled at 105.83, close to its highest level since the beginning of the year, which it reached on October 3.

Global stocks are now likely approaching the peak, said Naka Matsuzawa, a strategist at Nomura Securities.

“So far, the market is taking bad economic news as good news because it means a pause in interest rate hikes by the Fed,” he said.

“But now, the Treasury market has already been temporarily priced in, so there is little room for Treasury yields to fall further, removing support for the stock market. “In short, I don’t think the stock market rally will continue.”

Adding to short-term market tensions is that US President Joe Biden and Chinese leader Xi Jinping will meet this week on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit in San Francisco.

Crude oil prices also fell as concerns about demand outweighed concerns about supplies ahead of Chinese retail sales data later in the week, which may cast a cloud on expectations that have already been dampened by a decline in industrial activity in the world’s second-largest economy.

Brent crude futures for January and US West Texas Intermediate crude futures for December rose, both rising more than 70 cents to $82.23 and $77.94 a barrel.

Both benchmarks rose about two percent on Friday as Iraq expressed its support for the oil production cuts implemented by OPEC+.

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