Global markets were jolted out of their summer serenity yesterday as the spectre of inflation returned to haunt investors.
Government bonds continued to be dumped in the wake of last week’s policy meetings from the Federal Reserve and Bank of England. The two central banks signalled their extraordinary bond-buying programmes would be wound down and brought forward the timing of expected interest rate rises.
In energy markets, Brent crude, the international benchmark, rose above $80 a barrel for the first time in three years. US natural gas prices surged 10 per cent and European benchmark gas prices rose to a level that was double where they were in August.
The sharp rise in energy prices along with tight labour markets and supply chain disruptions are stoking fears that inflation will be more permanent than central banks have suggested up to now and will weigh on global growth and company profits.
The benchmark S&P 500 fell 2 per cent, its biggest loss since May, as more than 85 per cent of the stocks in the index declined. The tech-heavy, high growth Nasdaq Composite slid 2.8 per cent, its largest fall since March.
Government bonds extended their recent sharp sell-off, sending yields or borrowing costs, which move in the opposite direction to prices, sharply higher. The yield on the 10-year US Treasury note, which acts as a benchmark for borrowing costs for companies and households worldwide, rose 0.06 percentage points to 1.55 per cent, a level not seen since June.
Sterling suffered its biggest one-day drop against the dollar this year and sunk to its lowest level against the US currency since January as investors worried that the fuel crisis sweeping the UK could lead to a sharp slowdown in growth.
“Central banks have been trying to convince us that inflation is transitory,” said Dickie Hodges, a bond fund manager at Nomura Asset Management. “I think they’ve been in denial.”
As always, thanks for reading and here’s the rest of today’s news — Gordon
Five more stories in the news
1. US generals testify on Afghanistan withdrawal Two top US military officials said they believed that a few thousand troops should have remained in the country, and acknowledged other tactical and intelligence failings during the chaotic exit. Do you think Washington should have maintained a troop presence in Afghanistan? Tell us in our latest poll.
Elizabeth Warren to oppose second Fed term for Powell The progressive Democratic senator from Massachusetts said she would oppose Jay Powell’s renomination as chair of the Federal Reserve, calling him a “dangerous man” to lead the US central bank. Powell’s current term ends in February 2022 and President Joe Biden will have to make a decision on whether to renominate him soon.
Japan’s ruling party picks Suga successor The Liberal Democratic party staked its future on stability rather than gambling on a new generation of leaders after choosing Fumio Kishida as its next leader. The 64-year-old former foreign minister will be appointed Japan’s next prime minister on Monday ahead of a general election that must be held by November.
Amazon launches home-patrolling robot The tech giant has unveiled an almost knee-high autonomous robot, with a periscope camera and two large cartoon eyes, to patrol the home as part of a suite of new technology products that could alarm digital privacy advocates. The robot, named Astro, will cost $999 and ship to a limited number of customers later this year.
Evergrande sells bank stake The heavily indebted Chinese property developer has raised Rmb10bn ($1.5bn) by selling part of its stake in a bank to a state-owned investment group. The sale comes as Evergrande is engulfed in a deepening liquidity crisis after it missed an $83.5m interest payment on a dollar-denominated bond last week.
Coronavirus digest
Treasury secretary Janet Yellen warned that the US risks running out of money by October 18 if the country’s borrowing limit is not raised. Democrats are rushing to raise the ceiling in the face of Republican opposition.
Europeans are leaving their houses to go shopping, eat out, travel and visit cinemas as much as they did before the pandemic in a sign of returning consumer confidence across the eurozone.
Patients of a private healthcare provider in Brazil were unaware they would be “guinea pigs” in a study into medicines including hydroxychloroquine, a parliamentary inquiry was told yesterday.
Follow our coronavirus live blog for the latest news on the pandemic from our network of reporters around the world.
The days ahead
EU-US Trade and Technology Council The group will hold its first summit in Pittsburgh to discuss defending critical supply chains and technologies, such as artificial intelligence.
Gina Raimondo, US commerce secretary, said the Biden administration would push for American companies to trade with China despite Washington’s tough posture on Beijing over human rights and security, in an interview with the FT.
Afghanistan hearings day 2 Testimony in the Afghanistan inquiry moves to the House of Representatives today. The House Armed Services Committee will hear from Secretary of Defense Lloyd Austin, Joint Chiefs of Staff chair General Mark Milley and US Central Command Commander General Kenneth McKenzie.
Britney Spears court hearing Los Angeles Superior Court Judge Brenda Penny will be pressed today to make a pivotal decision on whether to keep Britney Spears’ father, James, on as her conservator, or whether to end the arrangement that controls her life. The expected ruling comes as a new Netflix documentary about the pop star is aired. It got four stars from our reviewer Suzi Feay.
What else we’re reading
The strange death of American democracy A constitutional crisis is looming, writes Martin Wolf. As former president Donald Trump tightens his grip on the Republican party ahead of the 2024 election, one must ensure that his naive and incompetent approach to the wielding of power will not be repeated.
Drinks companies worry about abstemious youth “Drink better, not more”: the industry slogan not only encourages consumers to continue trading up but resonates with efforts to reduce the problems associated with problem drinking. Now, as the world reopens, companies are seeking to combat the looming issue of alcohol sceptics, writes Brooke Masters.
Time to turn off Facebook’s digital fire hose How much control does the tech giant give users over ads? The answer, despite its protestations, seems to be hardly any. Many of us have our own algorithm war stories. Sometimes they are trivial, but other times they are downright cruel.
How Olaf Scholz won Germany’s election From the start of the campaign, Scholz, the Social Democrats’ candidate for chancellor, doggedly targeted the many Germans who had backed Angela Merkel in the past four elections but had no strong allegiance to her Christian Democratic Union. The approach paid off, with spectacular results.
How to make single finances work in a world built for couples Nearly one in four of us live on our own, but dealing with the financial and emotional strain of handling everything by yourself can be difficult. In this week’s episode of the Money Clinic podcast Claer Barrett, consumer editor, is joined by two experts who champion the single life.
Gaming
What do you do after you have broken records for the bestselling PC game series of all time? If you are Will Wright, creator of SimCity and The Sims, you lie low. Now, the 61-year-old is plotting his return.
Source: Economy - ft.com
