European equities fell on Monday after three consecutive weekly gains, as concerns over the inflation outlook continued to undermine investor confidence.
In Europe, the region-wide Stoxx 600 lost 0.7 per cent in late-morning trading. London’s FTSE 100 benchmark and Germany’s Xetra Dax were both down by 0.6 per cent.
A sell-off in US government bonds — whose returns are eroded by inflation — continued. The yield on the 10-year note, which moves inversely to price, climbed 0.02 percentage points to 1.36 per cent.
The 10-year yield started the year just above 0.9 per cent, but has risen consistently with predictions that US President Joe Biden’s proposed $1.9tn fiscal stimulus package will feed through to faster price rises.
“The main concern is related to the prospect of increased inflation,” said Tancredi Cordero, chief executive officer at advisory firm Kuros Associates. “There’s a lot of concern amongst investors in fixed income and businesses that are sensitive to that.”
Worries hit Asian markets on Monday. Japan’s 10-year Treasury rose 0.01 percentage points to 0.12 per cent, while Australia’s 10-year note gained 0.01 percentage points to reach 1.6 per cent.
The big question is whether rising inflation will push the Federal Reserve away from its path of ultra-loose monetary policy. Jay Powell, its chairman, will on Tuesday and Wednesday give his semi-annual testimony to the Senate Banking and House Financial Services Committees. These will be “important events,” said Jim Reid, research strategist at Deutsche Bank.
Futures markets suggested the negative sentiment would spread into the US session. Futures tracking the blue-chip S&P 500 fell 0.7 per cent and those for the Nasdaq 100 lost 1.2 per cent.
Oil prices continued to rally, meanwhile, on hopes for growing demand as the global economy reopened following the rollout of Covid-19 vaccines. Oil was also viewed by some investors as an inflation hedge.
Brent crude, the international benchmark, rose 0.6 per cent to $63.29 a barrel, while West Texas Intermediate, the US marker, added 0.7 per cent to $59.65 a barrel.
Copper gained as much as 3.7 per cent to hit a 10-year high of almost $9,300 a tonne in early trading on Monday, driven by reports that China’s largest copper smelter was reducing output. The price later eased to $9,004 a tonne.
Elsewhere, nickel moved above $20,000 a tonne for the first time since 2015 following a deadly accident over the weekend at a processing plant owned by Nornickel, the world’s biggest producer of the metal. Like copper, nickel pared its early gains and was trading at $19,650 a tonne by late morning.
Alastair Munro at brokerage Marex Spectron said industrial metals had also been boosted by the first official statements of 2021 regarding China’s economy.
Articles in Xinhua and other official news outlets discussed strengthening rural infrastructure and modernising agricultural production methods to spur consumption, he said. Such signs of significant growth plans “look set to be a new driver of China’s economy over the next few years”, he added.
In Asia, China’s CSI 300 index fell 3.1 per cent, its biggest one-day drop since last summer. Hong Kong’s Hang Seng lost 1.1 per cent and South Korea’s Kospi 200 dropped 0.9 per cent. Japan’s Topix gained 0.5 per cent.