World markets upset by the sharp rise in US inflation; Gold hits 5-month highs as investors seek safe havens

• US equity futures edged higher, indicating a larger open later, after a surprisingly large rise in consumer inflation hammered indexes.
• Consumer inflation in the United States has risen the most since the late 1990s last month, prompting investors to shed bonds and stocks.
• Gold was at a five-month high despite a strong dollar as investors looked for potential inflation hedges.

Global markets were disrupted on Thursday by a dramatic surge in consumer inflation in the United States, which reached its highest pace in a decade, casting doubt on the outlook for interest rates and pushing up the gold.

The Consumer Price Index in the United States – a key measure of inflation nationwide – gained 6.2% year-on-year, the fastest rate of annual inflation since 1990 and well above expectations for a 5.8% increase.

Data has shown that price pressures are increasing in a range of goods and services, rather than in specific areas, such as building materials or used cars. This has cast doubt on the Federal Reserve’s view that inflationary pressures will only be fleeting.

“We now expect core CPI inflation to peak at 6-6.5% in February or March next year, massively increasing the pressure on Chair Powell and other doves of the Fed, “said Ian Shepherdson, chief economist at Pantheon Economics.

“The risk that they may not be able to hold the ‘transitional’ line is increasing,” he said of US policymakers.

The dollar hit its highest level against a basket of major currencies since last July, while gold hit its highest level in five months, topping $ 1,870 an ounce on a surge in expectations of inflation.

US equity futures rose on Thursday, with those of the S&P 500 and Nasdaq 100 up 0.1 and 0.2%, respectively. This suggests that there may be some breathing room for benchmarks later today, after the S&P 500 slipped 0.8% on Wednesday to its biggest one-day drop in a month, while that the Nasdaq 100, with a strong technological component, lost 1.4%. The MSCI All-World Index plunged from record highs, losing 0.13%.

Two-year Treasury yields, which are most sensitive to changes in interest rate expectations, rose the most since last March after the CPI figure on Wednesday, rising 9 basis points. The two-year yield, which moves in the opposite direction to the price, stabilized the last time at 0.52%.

Meanwhile, US five-year break-even inflation rates – a market-based indicator of investors’ medium-term expectations for consumer price pressures – climbed to a record 3.1%.

“There are now fears that consumers, as well as the markets, will have to absorb further price increases, with all the inherent risks this poses to business profit margins and consumer inflation expectations,” said Michael Hewson, Chief Strategist of CMC Markets.

Gold often trades the reverse of the dollar, but with investors seeking shelter from stiffer inflation than many initially considered, gold may be a beneficiary of these inflows. capital. Gold futures rose 0.4% to around $ 1,856, while silver gained 0.8% to trade at $ 24.97 an ounce.

The VIX volatility index – which many call the “Wall Street fear index” – at its highest level in a month highlighted the more cautious mood on Wednesday.

Stocks in Asia have mostly ignored inflation concerns, in part thanks to local currencies falling against the dollar. With the yen down 0.2% against the dollar, the Nikkei was up 0.6%, while the Shanghai Composite closed up 1.2% and the Hang Seng was up 1% .

In Europe, data on Thursday showed the UK economy had slowed in the three months leading up to September. The Office for National Statistics said third-quarter gross domestic product grew only 1.3%, down from 1.5% expected and after the 5.5% expansion in the second quarter.

“Growth in the UK is slowing following easy gains made after the economic reopening and amid a shortage of goods and labor,” said Hussain Mehdi, macro and investment strategist at HSBC Asset Management.

“The short-term outlook remains difficult, with higher inflation expected to weigh on household purchasing power, while the Bank of England could raise rates further before year-end amid concerns by a wage-price spiral which sets in. “

The pound fell about 0.1% against the dollar and euro, while UK blue chips benefited from currency weakness and a set of windfall profits for retailers this week, notably M&S and Burberry.

The FTSE 100 was up 0.3% for the last time on the day, making it one of the best performing indices in the region, against a stable performance on the Stoxx 600 and a decline of 0.2% on the DAX.