Market Commentary

US stocks and Treasuries gain even as inflation data tops 5% again

• Wall Street stock and bond prices climbed on Wednesday despite data confirming a surge in inflation, and the Federal Reserve’s minutes indicating further details on its plans to begin easing asset purchases. Headline US consumer prices rose 5.4% year on year in September, marking the fifth consecutive month of annual increases of 5% or more. The figure was slightly ahead of most economists’ forecasts but had little immediate effect on US stocks as investors had already positioned themselves for a likely increase. Persistent inflation has increased confidence that the US central bank will begin tapering its pandemic-era stimulus measures as early as next month. Minutes from the latest meeting of the Federal Open Market Committee provided further support on this, showing that there was a growing consensus among top officials to begin tapering “soon”.

• The prospect has hit stock markets in recent weeks, and the blue-chip S&P 500 index has dropped about 4% from the record high it hit in early September, after its 0.3% rise on Wednesday. The tech-heavy Nasdaq Composite index rose 0.7% but the hotter than expected inflation kept the lid on the Dow Jones Industrial Average, which ended the session flat.

• The yield on the benchmark 10-year Treasury Note, which falls when prices rise, slipped for a second consecutive day to 1.54%; it had hit a four-month high at the start of the week. The two-year Treasury yield, which tracks interest rate bets, rose slightly to stay around an 18-month high of 0.36%.

• Investors were probably heartened by upbeat earnings reports. JPMorgan Chase & Co kicked off big bank earnings with stellar results that exceeded expectations. The bank’s CEO, Jamie Dimon, said that the firm released US$2.1 billion of cash it had set aside for poor credits and that the economic outlook was improving. Still, shares fell by 2.6% and other bank stocks slid too due to the spotlight on inflation amid supply chain constraints and a surge in energy prices.

• Adding buoyancy to market sentiment in the US was a bill passed by the House of Representatives temporarily increasing the government’s borrowing limit and averting a default on US debt. The bill now goes to President Joe Biden for his signature.

• In Europe, the region-wide Stoxx 600 also closed up 0.7%, while in Asia, Hong Kong closed its equity market because of typhoon Kompasu and will remain shut today for a holiday. China stocks ended Wednesday higher, lifted by consumer and technology stocks, as better-than-expected domestic trade data eased slowdown fears fanned by a power crunch and Evergrande’s debt crisis. The blue-chip CSI300 index rose 1.2%, to 4,940.11 points, while the Shanghai Composite Index gained 0.4% to 3,561.76 points.

• Singapore’s stock gauge was its highest in about two months, with investors showing optimism towards reopening as the country transitions towards an endemic Covid-19; in developing news, the Monetary Authority of Singapore decided to tighten its monetary policy.