Stocks run out of steam on regulation worries, higher yields

  • 27 October, 2021
  • 1:23 pm EEST

Stock Market

MSCI’s global equity benchmark is hovering close to Monday’s seven-week high and is on track for the best month in almost a year.

However, European stocks softened, led by a 2% drop in mining and resource firms .Bank shares also slipped, with Deutsche Bank down 5% despite forecast-beating earnings.

The losses started earlier in Asia, where tech stocks suffered hefty falls after China’s internet watchdog said it planned stricter registration rules for younger net users.

Meanwhile, U.S. futures pointed to gains for Wall Street, with investors still in a chipper mood after Tuesday’s forecast-beating results from Google owner Alphabet Inc and Microsoft Corp.

“We have good U.S. data in earnings which is very reassuring but valuation is very stretched in both the value as well as the growth sector,” said Sebastien Galy, senior macro strategist at Nordea Asset Management.

“And people are also getting a bit hesitant and are a bit worried because the amount of money that is going through will slow down with the Fed slowly starting to taper – but that is not necessarily a bad thing.”


Currency and bond traders were looking to a slew of central bank meetings over the coming week for guidance.

Canada is first up later on Wednesday at 1400 GMT while the European Central Bank meets on Thursday, when Bank of Japan also concludes its two-day meeting.

No changes are expected from Tokyo, but traders are expecting the ECB to push back on market inflation forecasts and are looking for hawkish clues from the Bank of Canada as prices put pressure on rates.

Policymakers are facing a steady drip of evidence that there is no let-up from pressure on consumer prices.

The latest came from Australia, where data showed core inflation hit a six-year high last quarter, raising the possibility of sooner-than-planned rate increases.

The ebbing risk sentiment meanwhile pushed up the safe-haven Japanese yen which rose 0.4% against the U.S. dollar though the greenback in turn held just off a one-week high versus a currency basket.

FED Reserve

The Fed has all but confirmed it will soon start to whittle back its asset purchases, though has said that shouldn’t signal that rate hikes are imminent. Nevertheless, Fed funds futures 0#FF: are priced for a lift-off in the second half of next year.

“We updated our Fed call to show a hike in Q4 2022 and four hikes in 2023,” analysts at NatWest said in a note.

“The inflation overshoot has been persistent,” they said. “There is (only) so much the Fed can tolerate before reacting … it feels inevitable that that conversation will be brought up more and more as we go into next year.”

Traders are also watching for the half-yearly update on UK public finances and economic outlook from the finance minister, who is expected to set out tighter budget plans and put Britain on course to become the first big economy to undergo a two-pronged withdrawal of fiscal and monetary stimulus.\

By Karin Strohecker

Reliable Trading since 2012