Stocks suffers as yields rise
Markets have fallen back into their old habits as an increase in yields has sparked a sell-off in stocks. Equity markets experienced low volatility at the start of the week and that was because US bond yields cooled, but today the 10-year yield traded above 3%, which speed up the decline in equities. In keeping with the recent theme, the technology-heavy NASDAQ has come under the most selling pressure. Activity in the bond market often reflects what traders predict about interest rates, so the rise in yields is seen as a sign the bond market is factoring-in further interest rate hikes. Earlier this month the Federal Reserve hiked rates by 50 basis points. A short while ago, Fed member Charles Evans, called for another 50 basis points lift at next month's meeting. Fears there could be more large rate hikes are hurting equities.
Worries about higher inflation are also doing the rounds as the UK CPI rate jumped from 7% to 9% - its highest reading in forty years. Yesterday it was confirmed that wages in the UK are growing at 7%, but in light of today’s inflation data, consumers are net worse off. The UK PPI output reading rose to 14% from 11.9%. PPI can often be a good predictor for CPI because if costs are rising for manufacturers, those costs will probably be passed on to consumers. Sterling is lower today because even though the CPI reading jumped to 9%, it missed the 9.1% forecast. It is worth noting the British pound underwent a massive rally yesterday, so today’s marginally lower-than-expected CPI figures acted as an excuse for some traders to exit their long positions. GBP/USD is down 0.7%. Even though the pound is firmly in the red today, the fact that inflation hit a new multi-decade high, makes it likely the focus will be on the Bank of England to hike rates again.
Silver is under pressure due to the jump in the US dollar. The metal dropped to a 22-month low last week amid a booming US dollar, and now that the greenback is rallying again, it could spell further pain for the commodity. Gold is in the red too. Brent crude and WTI was up on the news that some of the restrictions in Shanghai have been eased. In the last few hours, oil has been dragged lower by the overall bearish sentiment in the markets.