- Global shares sagged Tuesday under the weight of investor concerns over inflation and upcoming earnings.
- Chinese property giant Evergrande missed a third bond payment, further rattling sentiment.
- Market-based gauges of inflation expectations are nearing their highest since 2008 as energy prices surge.
Stock markets came under pressure Tuesday from persistent investor concern over rising price pressures ahead of a key read of US inflation, while another missed bond payment by Chinese property company Evergrande further undermined risk appetite.
Asian markets were rocked by beleaguered Chinese property company Evergrande, which missed a third payment on its dollar bonds, according to Reuters. The likelihood of a spillover of the risk to markets beyond China is seen as limited, but contagion was spreading fast throughout the domestic market.
In Europe, the benchmark indices fell, thanks to declines across sectors most sensitive to inflation, such as banks and retail stocks. The Stoxx 600 was last down 0.3%, while London’s FTSE 100 shed 0.5%, taking little comfort from data showing the UK jobless rate reached one-year lows in September.
“The overarching themes are likely to continue to dominate: the various power crises around the world, high energy prices and inflation concerns along with China’s array of woes: power, property and regulatory clampdowns,” ADM Investor Services’ chief global economist Marc Ostwald said.
Prices for natural gas have hit record highs in Europe and Asia and have soared in the US, while coal has rocketed to all-time peaks this week. Other basic materials, such as copper and lumber, are worth 40% more than they were this time last year, thanks to a robust bounce-back in demand after the pandemic forced lengthy shutdowns of huge swathes of the manufacturing and services sectors.
US market-based inflation expectations are near their highest since the onset of the subprime crisis in 2008. That indicates investors believe price pressures are likely to persist over the medium term and prompt the Federal Reserve to wind down its support for the economy more quickly.
US consumer price data for September is due on Wednesday. Inflation is expected to have accelerated at an annual rate of 5.3% last month, unchanged from August, but still just a fraction below 13-year highs.
Adding to the jitters was the start of the third-quarter earnings season. In the US, JPMorgan will be one of the first large caps to report on Wednesday. With businesses around the world encountering supply-chain bottlenecks, labor shortages and spiraling input costs, traders will scrutinize every detail of corporate results to gauge how companies are preparing for 2022.
“While investors want to believe the narrative that stock markets can continue to move higher, this belief is bumping up against the reality of how the continued rise in energy prices, as well as supply chain pressures are likely to impact company profit margins, at a time when consumer incomes are likely to face increasing pressure as we head into the winter months,” CMC chief market strategist Michael Hewson said.
The energy complex rallied broadly, with Brent crude futures up 0.2% at $83.78 a barrel, close to their highest in three years. Meanwhile, UK natural gas prices rose 1.9% – still 400% higher year on year, but around 25% below last week’s record, indicating there may be some respite for British households.
Chinese thermal coal futures – used in power generation – rose 8% to hit all-time highs after flooding closed a number of mines this week, compounding the country’s energy crisis.