Stocks slip amid inflation worries; pound weakens

Bloomberg

Stocks retreated as investors weighed concerns about scorching inflation and a looming recession against a strong start to the earnings season. The pound fell after UK inflation rose faster than economists expected.
Contracts on the S&P 500 and the Nasdaq 100 fell by about 0.7%. Netflix Inc. rallied in early New York trading after reporting a surge in subscribers. United Airlines Holdings Inc. jumped after its profit exceeded estimates, while Procter & Gamble Co. rose after a beat on sales. European stocks looked set to miss out on a fifth day of gains.
Treasury yields climbed, with the 10-year touching the highest since June 2008. A gauge of the dollar strengthened.
The pound weakened after soaring food prices drove UK inflation back into double digits in September, matching a 40-year high of 10.1% and intensifying pressure on the central bank and Liz Truss’s government to act. Gilts were broadly lower.
“The outlook for the UK is very, very difficult and certainly when focusing on our asset allocation it’s predominantly in the US where we have much higher conviction and certainty of outcome,” Grace Peters, JPMorgan Private Bank’s head of investment strategy, said on Bloomberg Television.
Upbeat company results, cheaper valuations and UK policy reversals have helped buoy risk appetite in recent sessions. Investors are racing to put on options trades, so they don’t miss out on the next big stock-market rally, according to Charlie McElligott, cross-asset macro strategist at Nomura Securities International Inc.
The focus in options market is chasing the upswing, McElligott said. Client demand is “totally focused” on preparing for a big move up in stocks, and in general, investors are already well-hedged against losses, he said.
At the same time, investors are having to keep track of weakness in the global economy and the impact of persistent inflation on decisions by policymakers at the Federal Reserve and other central banks. US equities are pricing in the highest odds of a recession than any other asset class and may be poised for more losses,
according to Citigroup Inc.’s quantitative strategists.
“US equities have priced the most (but not enough) recession risk, and earnings estimates have further to adjust,” strategists including Alex Saunders wrote in a note. “US bonds have priced the least risk, but it will take some time before bonds react to recession risks given the hawkish Fed.”
Some regional Fed directors last month favored raising a key interest rate by a smaller or larger amount than the 75 basis points that policy makers ultimately decided was needed to curb persistent inflation, according to minutes of discount-rate meetings.
Elsewhere in markets on Wednesday, oil rose amid concerns that the European Union’s latest sanctions on Russian fuel could exacerbate the market tightness that the US is trying to alleviate with additional sales. The Biden administration was expected to announce a plan to release 15 million barrels from US emergency oil reserves in an effort to ease high gasoline prices. Gold declined and
Bitcoin slid below $19,200.
In Japan, authorities continued their jawboning of the yen, with Finance Minister Shunichi Suzuki saying he is increasing the frequency of monitoring foreign-exchange markets. The currency hovered above 149 per dollar. The 10-year government bond yield rose above the 0.25% upper limit of the central bank’s target range.