GLOBAL MARKETS-Inflation angst lifts stocks but reins back dollar

BY Reuters | TREASURY | 10/14/21 05:15 AM EDT

* Treasury yield curve flattens; dollar rally pauses

* Fed speakers, U.S. bank earnings and PPI data awaited

* China manufacturing sector inflation hits record high

* Oil and gas prices rising again

* World stock markets climb

By Marc Jones

LONDON, Oct 14 (Reuters) - World markets stayed focused on rising inflation on Thursday as tech stocks rebooted global equities, oil and gas prices fired up again but the dollar and benchmark government bond yields both stalled.

Record high Chinese factory gate inflation data overnight following stronger-than-expected U.S. CPI figures on Wednesday meant the price pressure theme was very much alive but the reaction from traders was looking more nuanced.

The dollar, which has been driven to a more than 1-year high this week by growing bets on a U.S. interest rate rise in 2022, eased for a second day in a row along with the 10-year U.S. treasury yield which tends to drive global borrowing costs.

Europe's STOXX 600 index also climbed to its highest point of the month as investors there put aside recent caution. Wall Street futures added 0.5% too ahead of more inflation data and big bank earnings later.

"Our take is central banks are going to look through the inflationary effects of energy prices," said Kiran Ganesh, head of multi asset at UBS Global Wealth Management.

"Individual (central bank) governors are sounding a bit more cautious but we are not going to see substantial rate hikes," Ganesh added, predicting that it wouldn't end up morphing into stagflation - high inflation and stagnant growth - either.

MSCI's main index of Asian shares had gained 0.6% in its fifth rise in six session overnight too. Japan's Nikkei climbed 1.4% although China's property company shares had suffered more losses in Shanghai as the Evergrande crisis continued to rumble.

The FX and commodity markets were sending some mixed signals. Gold, often seen as a hedge against rising inflation, steadied after enjoying its best session in seven months on Wednesday.

Oil bulls pushed Brent crude back towards $85 a barrel. Natural gas climbed 2% having already soared more than 150% this year driving the spike in global energy prices. Bitcoin, also sometimes vaunted as an inflation hedge, rose to a five-month high of $58,550.

The dollar also pulled back to a nine-day low, allowing the likes of the euro, British pound, Australian and New Zealand dollars to all get back up.

Expectations that the U.S. Federal Reserve would tighten U.S. monetary policy more quickly than previously expected saw the greenback hit a more-than year high on Tuesday but it is now down for October.

U.S. initial jobless claims and producer price inflation data are both due later in the day. Earnings reports are also scheduled from big name U.S. banks including Bank of America (BAC) , Wells Fargo (WFC), Morgan Stanley (MS) and Citi .

"It seems to be a classic case of buy the rumour sell the fact type mentality," said Neil Jones, head of FX sales at Mizuho. "The Fed confirmed the expectations of many investors, I would suggest, holding long dollar positions."

(Additional reporting by Sujata Rao and Elizabeth Howcroft in London Editing by Raissa Kasolowsky)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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