Futures Steady as Inflation Keeps Traders on Edge: Markets Wrap

(Bloomberg) -- U.S. equity futures were calm as fears about inflation and Europe’s fourth virus wave simmered under the surface. 

Contracts on the Nasdaq 100 posted a slight gain while those on the S&P 500 were little changed. Tesla Inc. rose as much as 2.4% in U.S. pre-market trading, extending a bounce from the previous session after CEO Elon Musk disclosed more stock sales.

Even as global stocks trade near all-time highs, worries are rising that growth could be derailed by inflation, the resurgent virus, or both. The question remains whether the jump in costs will prove transitory or become a bigger challenge that forces a sharper monetary policy response, roiling both shares and bonds.

“The markets are still driven by uncertainty regarding how transitory inflation is,” according to Sebastien Galy, senior macro strategist at Nordea Investment Funds. “The market is assessing the situation about inflation -- what is in the price and what is not.”

The 10-year Treasury yield held above 1.6% as the case for tighter monetary policy pushed up yields. Traders are waiting to see the strength of demand at a 20-year auction Wednesday.

Volatility broke through the recent calm in currency markets, where the cost of hedging against volatility in the euro against the dollar over the next month climbed the most since the pandemic struck in March 2020. The move comes as traders bake in bets on faster rate hikes to curb inflation.

The pound traded at the strongest level against the euro in nearly nine months after higher-than-anticipated inflation data boosted Bank of England rate-hike expectations.

The Stoxx 600 Index inched higher, led by retailers, while travel and leisure posted the biggest losses. Europe is grappling with the worst outbreak of Covid infections since the start of the pandemic.

Meanwhile, oil declined as investors weighed the odds that the Biden administration will tap emergency reserves in a coordinated move with nations such as China. 

European gas surged to the highest level in a month as delays to a controversial new pipeline from Russia stoked fears of a supply shortage with winter setting in.

Cryptocurrencies remained lower after a tumble, with Bitcoin steadying around the $60,000 level.

What to watch this week:

• U.S. housing starts. Wednesday
• Conference Board U.S. leading index, initial jobless claims. Thursday
• Fed’s Richard Clarida and Mary Daly speak at Asia Economic Policy Conference. Friday

For more market analysis, read our MLIV blog.

Stocks

• Futures on the S&P 500 were unchanged as of 7:12 a.m. New York time
• Futures on the Nasdaq 100 rose 0.1%
• Futures on the Dow Jones Industrial Average were little changed
• The Stoxx Europe 600 rose 0.1%
• The MSCI World index was little changed

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%
• The euro was little changed at $1.1329
• The British pound rose 0.2% to $1.3461
• The Japanese yen rose 0.1% to 114.65 per dollar

Bonds

• The yield on 10-year Treasuries was little changed at 1.63%
• Germany’s 10-year yield was little changed at -0.24%
• Britain’s 10-year yield declined one basis point to 0.98%

Commodities

• West Texas Intermediate crude fell 0.7% to $80.19 a barrel
• Gold futures rose 0.6% to $1,865.80 an ounce

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