(Bloomberg) — Stocks retreated as investors weighed concerns about scorching inflation and a looming recession against a strong start to the earnings season. The pound fell after UK inflation rose faster than economists expected.
Contracts on the S&P 500 and the Nasdaq 100 fell by 0.7%. Netflix Inc. rallied in early New York trading after reporting a surge in subscribers. United Airlines Holdings Inc. jumped after its profit exceeded estimates, while Procter & Gamble Co. rose after a beat on sales. Tesla Inc. is among companies with earnings due later Wednesday. European stocks looked set to miss out on a fifth day of gains.
Treasury yields climbed to multi-year highs, extending the move after stronger-than-forecast inflation data out of Canada. US housing starts were also in focus, with figures showing new home construction declined in September. A gauge of the dollar strengthened.
The pound weakened after soaring food prices drove UK inflation back into double digits in September, matching a 40-year high of 10.1% and intensifying pressure on the central bank and Liz Truss’s government to act. Gilts were broadly lower.
“The outlook for the UK is very, very difficult and certainly when focusing on our asset allocation it’s predominantly in the US where we have much higher conviction and certainty of outcome,” Grace Peters, JPMorgan Private Bank’s head of investment strategy, said on Bloomberg Television.
Upbeat company results, cheaper valuations and UK policy reversals have helped buoy risk appetite in recent sessions. Investors are racing to put on options trades, so they don’t miss out on the next big stock-market rally, according to Charlie McElligott, cross-asset macro strategist at Nomura Securities International Inc.
The focus in the options market is chasing the upswing, McElligott said. Client demand is “totally focused” on preparing for a big move up in stocks, and in general, investors are already well-hedged against losses, he said.
At the same time, investors are having to keep track of weakness in the global economy and the impact of persistent inflation on decisions by policymakers at the Federal Reserve and other central banks. US equities are pricing in the highest odds of a recession than any other asset class and may be poised for more losses, according to Citigroup Inc.’s quantitative strategists.
“US equities have priced the most (but not enough) recession risk, and earnings estimates have further to adjust,” strategists including Alex Saunders wrote in a note. “US bonds have priced the least risk, but it will take some time before bonds react to recession risks given the hawkish Fed.”
Some regional Fed directors last month favored raising a key interest rate by a smaller or larger amount than the 75 basis points that policy makers ultimately decided was needed to curb persistent inflation, according to minutes of discount-rate meetings released Tuesday.
Fed’s Bostic Says Slowing Inflation Best for Long-Run Employment
Elsewhere in markets Wednesday, oil extended its volatile run as continued US efforts to curb prices and concerns over a global recession countered signs of tight supply. Gold declined and Bitcoin slid below $19,200.
Key events this week:
- EIA crude oil inventory report, Wednesday
- US MBA mortgage applications, building permits, housing starts, Fed Beige Book, Wednesday
- Fed’s Neel Kashkari, Charles Evans, James Bullard speak, Wednesday
- US existing home sales, initial jobless claims, Conference Board leading index, Thursday
- Euro area consumer confidence, Friday
Some of the main moves in markets:
- Futures on the S&P 500 fell 0.7% as of 8:40 a.m. New York time
- Futures on the Nasdaq 100 fell 0.7%
- Futures on the Dow Jones Industrial Average fell 0.6%
- The Stoxx Europe 600 fell 0.4%
- The MSCI World index fell 0.4%
- The Bloomberg Dollar Spot Index rose 0.6%
- The euro fell 0.9% to $0.9766
- The British pound fell 0.9% to $1.1223
- The Japanese yen fell 0.3% to 149.77 per dollar
- Bitcoin fell 1.2% to $19,136.7
- Ether fell 1.4% to $1,296.36
- The yield on 10-year Treasuries advanced 10 basis points to 4.11%
- Germany’s 10-year yield advanced eight basis points to 2.37%
- Britain’s 10-year yield advanced six basis points to 4.01%
- West Texas Intermediate crude rose 1.6% to $84.13 a barrel
- Gold futures fell 1.1% to $1,638.40 an ounce