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US stocks drop as inflation risk fans policy bets; USD pauses rally

Asian shares edgy amid inflation fears, dollar at one-year high
Asian shares edgy amid inflation fears, dollar at one-year high   -   Copyright  Thomson Reuters 2021
By Reuters

By Koh Gui Qing

NEWYORK -U.S. stocks fell on Wednesday and two-year Treasury yields clung to 18-month highs after data showed inflation ran faster than expected in September, cementing bets that policy tightening by the Federal Reserve is in the offing.

Figures showed the U.S. consumer price index rose 0.4% last month, higher than an expected 0.3%, as Americans paid more for food, rent and a range of other goods, and highlighting the challenges of strained supply chains.

“Persistent inflation suggests we remain in a hot economy, which could prompt the Fed to move sooner,” analysts from Bank of America said in a note.

Concerns that an end to the Fed’s ultra-loose monetary conditions would undercut support for equities dragged on U.S. shares despite gains in technology stocks and an encouraging earnings report from JPMorgan Chase & Co.

The largest U.S. bank reported third-quarter earnings on Wednesday that beat estimates thanks to record revenue in some investment banking business and a sunnier economic outlook that allowed it to release money set aside for potential loan losses. JPMorgan stock was down 2.4% by midday.

The Dow Jones Industrial Average fell 0.4%, the S&P 500 lost 0.11%, while the Nasdaq Composite added 0.41%.

The pan-European STOXX 600 index rose 0.80% and MSCI‘s gauge of stocks across the globe gained 0.24%.

Bets on tighter monetary policy flattened the U.S. yield curve.

The two-year Treasury yield jumped as high to 0.394%, a level last seen since March 2020, before receding to 0.358%. Benchmark 10-year yields declined to 1.549%, from 1.58% late on Tuesday. [US/]

The dollar, which has benefited from bets that tighter U.S. monetary policy would burnish its appeal as a higher-yielding currency, took a breather on Wednesday.

The dollar index fell 0.336% from a one-year high struck the previous day. A softer dollar lifted the euro 0.37% to $1.157.

The Japanese yen, which has hovered at a three-year low against the dollar, also bounced back, rising 0.16% to 113.44 per dollar. [USD/]

Oil prices, which have been on a tear, also paused their rally, as some investors questioned whether inflation and other supply chain issues will crimp economic growth and ultimately energy demand.

U.S. crude recently fell 0.21% to $80.47 per barrel and Brent was at $83.16, down 0.31% on the day. [O/R]

Gold, usually seen as a hedge against inflation, shone.

Spot gold added 1.8% to $1,791.62 an ounce. U.S. gold futures gained 1.69% to $1,788.00 an ounce. [GOL/]