Global Equities Retreat On Stagflation Fears


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Global Equities Retreat On Stagflation Fears

Global equity markets faced heavy selling pressure last week with investors concerned by the prospects of weaker economic growth and high inflation. Supply chain disruptions remain a major problem across the world, pushing prices higher for goods ranging from clothing to semiconductors. That has been feeding the inflation worries with questions being raised as to whether the current bout of elevated prices will be transitory as the central banks are suggesting or something more permanent. The possibility of a government shutdown in the US also weighed on sentiment although an agreement regarding the budget and the debt ceiling was eventually reached on Thursday evening.

Downwards moves in equity markets were sharp, the S&P500 in the US falling by -2.2% for its worst week since February[1]. The Nikkei 225 in Japan was particularly hard hit, slumping by -4.9% despite progress being made in its search for a new Prime Minister. In the UK, mid-cap names suffered amid the ongoing fuel crisis and signs of a deterioration in economic data. The FTSE250 declined by -2.7% with the FTSE100 more muted after a weekly fall of -0.4%. Eurozone equities also retreated with the German DAX and French CAC40 dropping by -2.4% and -1.8% respectively.

Sovereign yields were volatile across the week with the US 10-year Treasury briefly hitting a 3-month high before closing the week unchanged at 1.47%. Moves were more significant in the UK where increases were seen across the yield curve. The 10-year gilt yield jumped by 8 basis points (bps) to 1.00%, the first time it has gone through the 1.00% mark since March 2020. Meanwhile in the Eurozone, the 10-year benchmark rose by a single basis point to -0.19%.

In the commodity markets, oil prices continued to rise with brent crude climbing by +5.4% to $79.32 a barrel with the Bank of America suggesting it could reach $100.00 this winter[2]. Gold prices were largely unchanged at $1,756 an ounce, a weekly increase of +0.2% whilst copper declined again with the metal falling by -2.2% to $9,135 a tonne.


Week Ahead

Friday’s labour market report is the standout publication from the US this week. The headline unemployment rate is expected to have fallen to 5.1% with payrolls forecast to have grown by 490,000 during September. The Institute for Supply Management releases its PMI equivalent for the Services sector on Tuesday with oil inventory data due a day later. It’s a relatively quiet week in the UK with final Services and Construction PMI’s the only figures of note due on this occasion. [2]

In the Eurozone, final PMI’s are also due, both Bloc wide and at the individual country level. Retail sales figures are released on Thursday whilst the European Central Bank publishes the minutes from its most recent policy meeting on the same day. Moving to Asia, Caixin releases its Services PMI figure on Friday with there being no major numbers due from Japan on this time around. Elsewhere, OPEC hosts its latest gathering of its leaders on Monday. [3]


Read last week's market update

Fed Rate Expectations Lift Sovereign Yields


[1] T Rowe Price - 01.10.21

[2] - 01.10.21

[3] Forex Factory - 03.10.21




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