Rate Hikes and Rising Yields, ADP Jobs and EIA Data – What’s Moving Markets

By Geoffrey Smith

Investing.com — Energy prices feed inflation concerns and inflation concerns feed interest rate hikes and falling stock markets. The pattern was established in Europe overnight and is expected to continue when U.S. markets open. ADP will report its private-sector hiring report two days ahead of the key official labor market report for September. Constellation Brands (NYSE:STZ) reports earnings and Warby Parker has a lot to live up to after a strong debut. Here’s what you need to know in financial markets on Wednesday. 6th October.

1. Europe inflation worries drive yields higher, stocks lower

Stagflation worries ripped through European bond and stock markets overnight as prices for natural gas and power marked fresh highs. The yield on the German 10-Year benchmark bond rose as high as -0.16%, its highest since May, while its U.K. equivalent rose to 1.13%, the highest in over two years.

U.K. natural gas prices hit a new all-time high of 330 pence a therm, the equivalent of around 97 euros per megawatt-hour, as the scramble for energy supplies at the start of the northern hemisphere heating season showed no sign of abating.

The economy, meanwhile, showed signs of a sharp slowdown, with German manufacturing orders falling 7.7% on the month in August, largely due to the key automotive sector.

Russia, still waiting on European regulatory approval to start gas flows through the new Nord Stream 2 pipeline, continued to play hardball, a Kremlin spokesman again putting the blame for the shortage on European policymakers.

2. ADP’s warmup act for the employment report

Treasury yields also advanced in the U.S. amid ongoing uncertainty over the debt ceiling debate and fears that higher global energy prices will also pass through into U.S. inflation through the transmission channel of Natural Gas.

European and Chinese demand for exports of liquefied natural gas continues to play havoc with U.S. benchmark prices, which rose another 0.9% overnight to $6.369 per mm Btu. They’ve now more than tripled in the last year.

The economic focus later will be on ADP’s private payrolls report, which is expected to show an acceleration in hiring to 428,000 last month from 374,000 in August.

3. Stocks set to give up Tuesday gains at open

U.S. stocks are set to slump again at the opening, under fresh pressure from rising energy prices. The 10-Year benchmark Treasury yield rose as high as 1.57% overnight before stabilizing a little lower at 1.54% by 6:15 AM ET.

Dow Jones futures were down 349 points, or 1.0%, putting the cash index on track to lose all of its Tuesday gains and more when the market opens. S&P 500 futures were likewise down 1.2%, reversing all of the previous session’s gains, and Nasdaq 100 futures were down 1.4%.

Stocks likely to be in focus include Facebook (NASDAQ:FB), which remains under pressure after critical comments from Congressmen and -women on Tuesday in response to whistleblower Frances Haugen’s testimony. Also in focus will be Warby Parker (NYSE:WRBY) stock, which rose strongly on its market debut on Tuesday.  Brewer Constellation Brands reports earnings.

4. Rising interest rates around the world

The global monetary tightening cycle continued overnight, as the Reserve Bank of New Zealand raised its key rate by 25 basis points to 0.5%, citing inflationary pressures.

Iceland followed suit, raising its benchmark rate to 1.50% from 1.25%.

That leaves Poland, whose national bank is also under pressure to raise rates for the first time since the pandemic when its policy-making council meets later Wednesday. Hungary, Czechia and Romania have all tightened policy in recent days, while the Polish zloty has risen 0.7% against the euro amid expectations that the NBP will follow suit, despite its obvious reluctance.

In the cryptocurrency space, Bitcoin sustained itself above $50,000 but alt-coins came under renewed pressure.

5. Oil hits fresh highs, EIA inventory data in focus

Crude oil prices pushed to fresh highs, still supported by perceptions that OPEC and its allies have left the world short of fuel for the next couple of months by refusing to speed up production increases.

That perception is enduring despite a second straight weekly rise in U.S. crude inventories, albeit a small one of less than 1 million barrels, according to the American Petroleum Institute. The government’s data are due at 1030 AM ET, as usual.

By 6:30 AM ET, U.S. crude prices were at $78.55 a barrel, while Brent futures were up 1.2% at $82.23 a barrel.

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