US stocks close near session lows
The surge in energy prices fuelled stock volatility amid an intensifying debate on whether inflation pressures will be transitory or derail the economy.
Traders also assessed a news report that China is expanding its crackdown to banks. The S&P 500 Index closed near session lows. West Texas Intermediate crude climbed above USD80.00 a barrel for the first time since late 2014 as a power crisis from Europe to Asia boosts demand for oil. Aluminium, the energy intensive metal that is used in everything from beer cans to iPhones, hit a 13-year high. Treasury futures fell, with the cash market closed for Columbus Day.
The widespread rally in commodities has unsettled traders, with supply bottlenecks raising doubts about whether stock valuations can be stretched any further. Meantime, policymakers are seeking to balance the withdrawal of stimulus with concerns that growth may have peaked amid inflation pressures. Corporate earnings will be the next key test for the equity market.
“Third-quarter earnings season begins this week, and the topic of inflation will be front of mind,” said a chief market strategist. “The extent to which margin pressures from rising input costs can be offset by pricing power will be scrutinised closely.” – Bloomberg News.
The S&P 500 fell 0.69% to 4,361.19, the Dow Jones Industrial Average lost 0.72% to 34,496.06, and the Nasdaq Composite Index shed 0.64% to 14,486.20.
Europe’s industrial sector has started to cut demand for natural gas, as record prices have made the fuel prohibitive for many consumers.
Average consumption to date in October is 12% lower than its pre-pandemic level, according to data compiled by Paris-based consultancy Engie EnergyScan. Gas consumption had already started to fall in September, down 5% from the 2019 level.
“We are starting to see the beginning of a demand destruction trend in the industrial sector in Europe,” said Julien Hoarau, head at Engie EnergyScan. “Germany, the Netherlands and the UK are showing the largest reductions so far, but we really need to wait for a few weeks to see if the trend is confirmed, notably when gas demand for heating will increase.”
Natural gas prices have hit fresh records almost daily recently, just before lower temperatures start to increase demand for heating in the region. Some energy intensive companies have temporarily shut operations because they are becoming too expensive to run. The crisis has also broken power suppliers and weighed heavily on European consumers’ pockets.
Europe’s benchmark gas contract has retreated in recent days, on the hope that Russia will increase flows. However, it remains up fourfold this year.
“High gas prices can slow down the economic recovery in Europe as industrial users are already suffering with it,” said Hoarau. – Bloomberg News.
On Monday (11 October), the Stoxx Europe 600 Index edged up 0.05% to 457.53.
Asked to describe himself in the race to become Japan’s Prime Minister, Fumio Kishida often gave one answer: that he was a “good listener”. His quick retreat on plans to raise the country’s capital gains tax shows that he is certainly listening to stock traders.
Japanese equity markets Monday (11 October) cheered Kishida’s comments over the weekend that he was not thinking of reviewing the nation’s capital gains taxes for now. His remarks, which along with a weakening yen helped drive the Nikkei 225 Index up 1.60% to 28,498.20, followed a plunge in equities since he won the vote to replace Yoshihide Suga.
The prime minister’s talk of a “new form of Japanese capitalism” and pledges to redistribute wealth to narrow the gap between rich and poor have been the cause of much anxiety in Tokyo markets since his election. “Kishida Shock” became the talk of the town as the Nikkei fell for eight straight sessions through 6 October, its longest losing streak since 2009.
Others cautioned that Kishida’s reversing course on one of his most cited policies was not encouraging for his long-term prospects. – Bloomberg News.
The Nikkei 225 Index fell 0.31% to 28,409.50 at the open on Tuesday.
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