Wall Street stocks head for worst week since June

Updates to actions

Sign up for myFT Daily Digest to be the first to know about stock news.

The blue-chip Wall Street benchmark was heading for its worst week in nearly three months on Friday, as renewed concerns about inflation shattered optimism about the central bank’s continued support for financial markets .

The S&P 500 stock index was little changed in mid-afternoon in New York, but remained down 1% for the week, its worst performance since June. The technology-focused Nasdaq Composite edged down 0.1%.

Investor confidence was shaken on Friday when data showed US ex-factory prices rose 0.7% month-on-month in August, beating economists’ expectations for a 0.6% increase.

Ian Lyngen, interest rate strategist at BMO Capital Markets, said reading inflation reinforced “lingering concerns about high cost structures” as supply chain disruptions caused by the pandemic of Covid-19 persisted.

Jorge Garayo, global head of inflation strategy at Societe Generale, said: “The market is starting to think that 2022 may be a year when inflation stays high.”

“I haven’t seen anything that convinces me of when this disruption will be resolved,” Garayo added, highlighting shortages of everything from computer chips to cabinets, caused in part by coronavirus-triggered closures in Asian producing countries. .

US government debt was liquidated, pushing the yield on the 10-year Treasury bill by 0.04 percentage point to 1.34%. Yields move in the opposite direction to price.

In Europe, sovereign debt was also in disgrace, a day after the continent’s central bank announced it would “moderately” slow bond purchases as part of its emergency monetary stimulus package of 1.85 billion euros.

The yield on the 10-year German Bund – the benchmark safe asset in the euro area – climbed 0.03 percentage point to minus 0.33%, while the yield on the equivalent Italian bond surged from the same margin at 0.7%.

Christine Lagarde, president of the European Central Bank, signaled that bond buying could continue in another form in 2022, saying that “there is still some way to go before the damage to the economy from the pandemic are not fixed “.

The ECB’s move was “symbolic of the radical change to come,” Bank of America strategists said. “Central banks, as buyers of first resort, are stepping back. ”

Antonio Cavarero, chief investment officer at Generali Insurance Asset Management, said central bankers were still reluctant to reduce their emergency debt purchases, which had lowered bond yields and increased the relative attractiveness of stocks.

“Don’t expect a straight line towards monetary tightening,” he said. “Central banks are sending signals to test the waters, to see if markets and economies can accept the idea of ​​higher rates.”

European stocks also ended the week lower, with the regional benchmark Stoxx 600 closing 0.3% for a weekly decline of 1.2%, its biggest drop since mid-August.

The dollar index, which measures the US currency against six peers, edged up 0.13% in afternoon trading. Brent crude, the benchmark for oil, rose 2% to $ 72.87 a barrel in response to production delays caused by Hurricane Ida.