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GLOBAL MARKETS-Dollar soars to 16-month high after U.S. inflation surge

GLOBAL MARKETS-Dollar soars to 16-month high after U.S. inflation surge

reuters.com · 11/11/2021 05:23
GLOBAL MARKETS-Dollar soars to 16-month high after U.S. inflation surge

U.S. CPI rises at fastest pace since 1990, roiling markets

Dollar hits 16-month high on bets for earlier rate hikes

Treasury yields jump, break-even rate at record high

Euro and sterling take hit in Europe

China property assets rally

Graphic: Global asset performance http://tmsnrt.rs/2yaDPgn Graphic: World FX rates http://tmsnrt.rs/2egbfVh

By Marc Jones

- The dollar hit a 16-month high on Thursday and bond and stock markets drooped after the strongest U.S. inflation reading in over three decades fuelled expectations of Fed interest rate hikes next year.

The dollar index =USD, which gauges the currency against six peers including the yen and euro, continued to make steady progress in early European trading after rising on Wednesday in its biggest jump since March. /FRX

U.S. consumer price data released on Wednesday showed the biggest gain in four months, lifting the annual increase to 6.2%, the strongest year-on-year rise since November 1990 and following a 5.4% leap in September. nL1N2S11BJ

The dollar pushed the euro below $1.15 EUR=, leaving the next major chart support level down at $1.12. European stocks nudged higher, sensing a competitiveness boost, but the yen JPY=EBS was falling towards a four-year low at 114.15 per dollar.

"There wasn't a single element of the CPI data that drove the upside surprise yesterday, it was just everywhere," said Societe Generale FX strategist Kit Juckes.

"You can't ignore something that broad-based and it will reinforce the view that the Fed is going to hike next year."

After selling off sharply together with U.S. Treasuries after the U.S. inflation numbers, euro zone bonds were calmer in early trade. U.S. bond markets were closed for a holiday. GVD/EUR

Still, 10-year bond yields were around two basis points higher across Europe DE10YT=RR, FR10YT=RR, firmly above lows hit in the past week as central banks including the ECB talked down aggressive market pricing on rates.

U.S. Treasury yields leapt by the most since February on Wednesday to nearly 1.6%. U.S. real yields, which take inflation into account, dipped to record lows and the five-year breakeven rates US5YTIP=RR hit a record 3.113%.

"The inflation numbers surprised on the upside, and they may not even be the peak," said ING economist Rob Carnell.

"The market thinks the Fed, and most other central banks, are behind the curve," meaning a more rapid tightening than policy makers have so far communicated, he said. "Risk assets hate this."

China and Japan's stock markets also rose overnight, supported by property developer China Evergrande Group making another last-minute bond coupon payment to avoid default and by a weaker yen, which helps Japanese exporters.

Chinese blue chips .CSI300 rallied 1.28%, led by real estate stocks. Japan's Nikkei .N225 ended up 0.6% as the yen weakened as far as 114.15 per dollar JPY=EBS from as strong as 112.73 earlier this week.


INFLATION

U.S. stock futures ESc1 ticked up 0.1%. On Wednesday, the S&P 500 .SPX fell d 0.8%, its worst day in over a month.

The Fed has said prices will fall once supply bottlenecks start easing and last week urged patience, reiterating that high inflation is "expected to be transitory".

The money market now prices a first Fed interest rate increase by July. FEDWATCH

Volatility spilled into other markets, with the CBOE Volatility index .VIX, Wall Street's so-called fear gauge, touching its highest level in nearly a month.

Investors sought inflation hedges, with gold XAU= jumping to a five-month high of $1,868.20 overnight before easing to around $1,850 on Thursday.

The main energy commodities have also been driving up inflation. Oil steadied in London after pulling back sharply from near seven-year highs the previous day, when U.S. President Joe Biden said his administration was looking for ways to reduce energy costs. nW1N2OE04F

Brent crude LCOc1 futures rose 64 cents to $83.27 a barrel, but down from as high as $85.50 on Wednesday and October's three-year peak of $86.70.

U.S. West Texas Intermediate (WTI) crude CLc1 gained 60 cents to $81.98 per barrel, but off the overnight high of $84.97 and last month's seven-year peak.

Bitcoin BTC=BTSP hit a fresh record at $69,000 before dipping back to around $64,700.


World FX rates YTDhttp://tmsnrt.rs/2egbfVh

Global asset performancehttp://tmsnrt.rs/2yaDPgn

Asian stock marketshttps://tmsnrt.rs/2zpUAr4

(Additional reporting by Kevin Buckland in Tokyo, Editing by Timothy Heritage)

((marc.jones@thomsonreuters.com; +44 (0)20 7513 4042; Reuters Messaging: marc.jones.thomsonreuters.com@reuters.net Twitter @marcjonesrtrs))

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