Global equities drifted on Thursday after large consumer-facing businesses said they had passed higher input prices on to customers, adding more fuel to a debate about prolonged inflation leading to interest rate rises.
The S&P 500 index fell 0.1 per cent in lunchtime trading in New York, after closing the previous session on the cusp of a record high. The technology-focused Nasdaq Composite added 0.2 per cent.
In Europe, the Stoxx 600 index ended the session flat, remaining just over 1 per cent below its August all-time high.
The moves came after the household goods group Unilever warned about inflation, but said it had managed to raise product prices in response. The consumer goods groups Nestlé and Procter & Gamble also said this week they had lifted prices to counteract higher input costs.
The updates alleviated concerns, which had pressured equity markets last month, about pandemic-related supply chain bottlenecks and an oil price surge hitting companies’ profits. But they also raised questions about how persistent consumer price inflation — which is running at a 13-year high in the US — will be and how aggressively central banks might act to contain it.
“Markets had presumed companies wouldn’t be able to hold their [profit] margins, so this is a good development in one way,” said Roger Lee, head of equity strategy at Investec Bank. “But it also looks like this inflation we are seeing is becoming more persistent as price rises are accepted by consumers.”
The yield on the benchmark 10-year US Treasury note rose 0.03 percentage points to 1.66 per cent. The yield, which moves inversely to the price of the security, has climbed from about 1.3 per cent a month ago as traders sold Treasuries in anticipation of the Federal Reserve reducing its $120bn a month of pandemic-era bond purchases. High inflation has also piled pressure on Fed policymakers to US raise interest rates from their current record low.
Sunil Krishnan, head of multi-asset funds at Aviva Investors, said he would scrutinise companies’ third-quarter earnings for “signs that inflationary pressures are broadening out from those bottlenecks in shipping and goods into the labour market”.
US railroad operator Union Pacific on Thursday warned that it would do less business for the rest of the year than it had anticipated because of supply chain disruptions including congestion at ports.
Elsewhere in markets, the Turkish lira fell 2 per cent to hit a fresh all-time low of TL9.47 against the US dollar after the country’s central bank slashed its main interest rate by 2 percentage points to 16 per cent — a much deeper cut than markets had expected.
Sterling softened slightly against the dollar, losing 0.1 per cent to $1.38, as a warning by UK health secretary Sajid Javid that Covid-19 cases could hit 100,000 a day revived concerns about the nation’s economic recovery.
Brent crude, the international oil benchmark, fell 2 per cent to $83.87 a barrel but remained close to a three-year high.
London’s FTSE 100 slipped 0.5 per cent as shares in miners exposed to China’s slowing economy dropped. Hong Kong’s Hang Seng index fell 0.5 per cent after distressed Chinese homebuilder Evergrande said a planned sale of its property services division had collapsed.