Global stocks fall as oil hits a 3-year high and China's energy crunch fans fears of inflation
Wang Ying/Xinhua via Getty Images
- Global stocks fell Tuesday as China's energy shortage hit factories, a risk to the supply of goods.
- That shortage and a natural gas squeeze helped drive Brent crude's price above $80 a barrel.
- Soaring Treasury yields were weighing on US stocks, with techs under particular pressure.
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Global stocks mostly traded lower Tuesday as investors gauged the potential impact of China's energy crunch on the global supply of goods, while oil continued to make gains and US bond yields rose to multimonth highs.
Futures on the Dow Jones dropped 0.5%, while those on the S&P 500 fell 0.9%, after ending in the red on Monday. The Nasdaq was trading down 1.5% as of 6:10 a.m. ET, suggesting a lower start to trading later in the day.
Rising bond yields were weighing on US equities, especially on technology stocks. These are seen as sensitive to rising yields, as increased debt costs can hamper their growth.
The 10-year Treasury yield was last up 4.1 basis points to 1.525%, its highest level in about four months.
The electricity crisis in China that initially hit factories has spread to homes. Already, the widening power shortage has held back production at several Chinese factories, including Apple and Tesla suppliers. That has ignited concerns of a manufacturing squeeze in China that could roll into global supply chains, driving prices higher.
Goldman Sachs and Nomura overnight downgraded their forecasts for China's economic growth in 2021.
China's energy problems are a factor in gains for oil on Tuesday, analysts said, alongside a natural gas shortage set to spread worldwide. Demand for natural gas should spill over into oil as an alternative, they suggested.
Brent crude prices rose above $80 a barrel to a three-year high, but have eased to trade 0.8% higher at $79.43 a barrel. West Texas Intermediate advanced 1.06% to $76.25 a barrel.
"The driver is clearly what appears to be escalating energy shortages in China, with winter not even here yet, with Asian buyers competing with Europeans for spot natural gas supplies, and now I suspect, spot oil supplies," said Jeffrey Halley, a senior market analyst at Oanda, in a note.
US Treasury yields climbed as attention refocused on how sharply higher inflation would affect the chances of the Federal Reserve raising interest rates next year and starting to cut back bond purchases in November, as expected.
New York Fed President John Williams indicated Monday that US economic growth is strong enough to begin tapering bond buying, but said a hike in interest rates from near-zero levels will take some time. Meanwhile, Minneapolis Fed President Kashkari said this year's pickup in US inflation was a by-product of COVID-19 supply disruptions and policymakers should not react just yet.
Fed Chair Jerome Powell is due to give testimony to the Senate Banking Committee later today. In prepared remarks, he said supply bottlenecks are putting pressure on inflation, which will likely remain elevated in coming months.
"All eyes will be on further signals of a firming up of tapering expectations, although I expect Powell to remain firmly ensconced in team transitory," Oanda's Halley said.
Asian equities initially had a lackluster session Tuesday, but most major indexes in the region closed higher.
The Shanghai Composite was up 0.5%, while Hong Kong's Hang Seng added 1.07%, while Tokyo's Nikkei lost 0.2%.
In Europe, investors continued to assess the German election result and a looming gas supply shortage. London's FTSE 100 fell 0.6%. The pan-European Euro Stoxx 50 dropped 1.4%, and Frankfurt's DAX lost 0.9%.
Gold lost 0.6% to reach $1,740 an ounce. The dollar index continued to rally, up 0.2% to 93.57.
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