Stocks rise again as lower energy prices ease stagflation fears

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  • European and Asian equities rally as energy costs fall
  • Dollar and US benchmark yields pause near recent highs
  • Germany sees shock drop by 4% in industrial production
  • Hope the US can resolve the debt ceiling feud
  • Key US employment data due on Friday

LONDON, Oct. 7 (Reuters) – Global stock markets stepped back on gas on Thursday as hopes grew that Washington could resolve its debt ceiling feuds and a global drop in energy prices eased growing fears of “stagflation”.

European stock markets hit 2.5-month lows and Wall Street futures were trending higher as lower oil and gas prices offered relief after a sharp 4% drop in German industrial production , which highlighted the toxic risk of “stagflation” of runaway inflation and moribund growth. Read more

The pan-European STOXX 600 index (.STOXX) rose 1.25% in large-scale buying to reverse weekly losses, miners (.SXPP), utilities (.SX6P) and automakers (.SXAP) ) all being on the rise.

Borrowing costs in the bond market also calmed down after a sharp rise the previous day, which brought benchmark government yields in the region to their highest level since June.

“We believe the recent pullback (in global equities) is an opportunity to buy the decline in cyclical assets – which would include all stocks (EM and DM),” analysts at JPMorgan said, although US tech stocks remain ultra-expensive.

“We don’t think the current price of energy will have a significant negative impact on the economy … Even with oil at $ 130 or $ 150, the stock markets and the economy could perform well,” indicating 2010- 15 when oil averaged over $ 100 a barrel and the markets performed very well.

Oil fell nearly 1.5% and gas prices fell nearly 4%, helping European gas futures retreat from record highs.

Gas prices have more than quintupled since the start of the year, and the huge increase in recent weeks has caught the attention of policymakers around the world.

EU Energy Commissioner Kadri Simson said on Wednesday that the price shock “was hurting our citizens, especially the most vulnerable households” and that “there is no doubt that we need to take political action” .

Britain’s National Grid said the UK faced tight electricity supplies this winter, while local media reported Spain’s Energy Minister summoned top executives from its three main electricity companies . Read more

BACK TO THE FUTURE

U.S. futures also rebounded, with S&P 500 futures rising 0.9% after wild swings on Wednesday fueled by hopes Democrats and Republicans in Congress could reach a deal to avoid a default of public debt.

U.S. Senate Republican Mitch McConnell has said his party will support an extension of the federal debt ceiling until December.

“This means President Biden and the Congressional Democrats would be able to complete their budget spending program – now estimated at around $ 1.9 to $ 2.2 trillion,” Deutsche Bank strategist Jim Reid said. .

The largest MSCI Asia-Pacific stock index outside of Japan (.MIAPJ0000PUS) closed up 1.8% overnight, its largest single-day gain since August.

Hong Kong (.HSI) led Asia’s gains with a 3% rebound from a year-low. South Korea’s Kospi (.KS11) gained 1.8% and Japan’s Nikkei (.N225) strengthened 0.5% to post eight days of losses.

However, Chinese real estate debt markets were still bleeding profusely, with those of the Kaisa Group – China’s leading real estate company by default in 2015 – collapsing as much as 8.2% and some of Greenland Holdings, which built some of the world’s tallest residential towers, falling to half of their face value.

Charts showing the net debt and market capitalization of China’s most indebted real estate companies

Global markets will then focus on US payroll data due on Friday, with investors predicting that a reasonable figure will mean the Federal Reserve will decide at its November meeting to start scaling back its massive stimulus package.

The dollar was stable, not too far from the 12-month highs reached last month against a basket of currencies and holding a 14-month high against the euro.

The benchmark 10-year US Treasury yield was 1.53%, down from a 3.57-month high of 1.57% on Wednesday. German Bunds hovered around a still negative rate of -0.19%, showing little reaction to the European Central Bank meeting minutes revealing that it had debated a larger cut in its purchases assets last month.

“The argument has been made that the markets already expected the end of net asset purchases under the PEPP by March 2022,” the accounts said. “It was stressed that, even without the PEPP, the overall stance of monetary policy remains very accommodative.”

Additional reporting by Alun John in Hong Kong; Editing by Hugh Lawson and Chizu Nomiyama

Our Standards: The Thomson Reuters Trust Principles.


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