Global Stocks Flatline as Inflation, Rate Worries Creep Back Into Markets

KONTAN.CO.ID - LONDON/NEW YORK. Global stocks traded cautiously on Monday as the market's focus turned to U.S. inflation data for more clues on whether global interest rates really have peaked.

After two weeks of gains, MSCI's gauge of global equities was flat, and Wall Street's benchmark S&P 500 share index lost 0.27%. The Dow Jones Industrial Index was little changed, while the Nasdaq Composite slid 0.4%.

The index has gained almost 5% so far this month, after a spate of risk aversion in October caused by the outbreak of the Israel-Hamas war was soothed by bets that major central banks have ended their lengthy run of interest rate hikes.

Still, the week ahead is packed with market risk events, with consumer inflation and retail sales figures from the United States on Tuesday and Wednesday, respectively, the most likely to shift the economic narrative.

"Momentum in the U.S. is still robust and inflation could persist," strategists at Barclays said in a note to clients, warning of yet another rate hike from the Federal Reserve.

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

"While a continuation of the (stocks) rally into year-end is definitely possible, it may be muted by bearish equity sentiment driven by both heightened geopolitical and financial market risk," research house BCA also cautioned in a note to clients on Monday.

That combination of rate hike worries and risk aversion helped send the dollar to a fresh one-year high against the yen on Monday.

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

The dollar hit 151.90 yen on Monday for the first time since mid-October last year, and was still hovering at 151.64 near those highs at 1536 GMT. The dollar index, which tracks the U.S. currency against six others, was flat at 105.83, within distance of its year-to-date high reached Oct. 3.

Nomura Securities strategist Naka Matsuzawa said global equities were now likely close to a peak.

"Up until now, the market has been taking bad economic news as good news, because that would mean a pause in Fed rate hikes," he said.

"But now, the Treasury market has already priced in a pause, so there's not much room for Treasury yields to fall further," removing a support for the stock market. "In short, I don't think the stock market rally is going to continue."

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

Crude oil prices also eased as demand worries trumped supply concerns ahead of Chinese retail sales data later in the week that may darken an outlook already dimmed by declining industrial activity in the world's second-largest economy.

Brent crude futures for January and U.S. West Texas Intermediate (WTI) crude futures for December edged higher, both up over 70 cents at $82.23 and $77.94 a barrel.

Both benchmarks gained nearly 2% on Friday as Iraq voiced support for oil cuts by OPEC+.