Geoffrey Smith 

The Investing.com – Fears of “stagflation” – high inflation, low growth – are rising across the world market after disappointing U.S. jobs reports and continuing rallies in energy prices around the world, including crude oil which reached a new seven year high. The Bank of England quickly moves into rate hiking mode. There is some relief in China as Meituan escapes a probe into market abuse with a handshake. This is what you should know about financial markets Monday 11 October. 

1. Stagflation fears grow

The dollar came off its Friday highs as the market digested an employment report that pointed to a high-inflation-low-growth scenario in the U.S. for the near term.

In a note to clients on Sunday, Goldman Sachs (NYSE:) shaved another 0.1% from its growth forecast for this year to 5.6%, and also cut its forecast for 2022 to 4%, from 4.4% previously, citing a “longer-lasting drag on virus-sensitive consumer services spending” along with the fading effects of previous stimulus.

Friday’s jobs report had fallen well short of expectations, with the U.S. economy creating only 194,000 jobs in the month. The average earnings also grew faster than anticipated. What caught analysts’ eye was chiefly the failure of more people – especially women – to return to the workforce, something seen by many as a sign of how families are struggling to overcome the disruption to working patterns from the pandemic.

The report reached the consensus that there was a beginning to reduction in bond purchases by Federal Reserve Bank in November.

2. China’s clampdown – more bark than bite?

Sentiment toward Chinese ADRs looks set for a change for the better, after food delivery giant Meituan escaped with a relatively light fine for market abuse violations – one of the highest-profile cases in a broad attack by the authorities on some of China’s most valuable technology-based companies in recent weeks.

Tencent-backed companies were fined $534m by the State Administration for Market Regulation, which caused Hong Kong stock prices to jump 8.4%.

In the background, however, the country’s real estate sector continues its drawn-out battle with the bond markets. Overnight, credit spreads for Chinese corporate dollars bonds reached an all-time high as Evergrande was ready to default on its full debt payment.

3. Stocks will slide openly; Southwest at focus

Stock markets in the United States will open later than normal due to lower openings. This is because of declining growth and increasing prices seen on a wide range of markets. Trade may feel a little subdued by third-quarter earnings season’s calm, as well as the Columbus Day holiday which will see the Treasuries cash market closed.

They were at 6:15 am ET (1115 GMT) and had fallen 84 points or 0.2%. Meanwhile, they were 0.4% lower than expected, and 0.6% below their previous record.

Hasbro (NASDAQ) and Southwest Airlines (NYSE), which CEOs said they would be taking extended sick leave, are two stocks that will likely come under scrutiny later. After a report that Emerson (NYSE 🙂 Electric might spin off its industrial-software business to a joint venture, it could also be under threat.

4. Sterling rises as the Bank of England moves into hike mode

The U.S. jobs report may have done little to clarify when the Fed may raise interest rates but across the Atlantic, it’s starting to look much more clear-cut.

Two top Bank of England officials signalled an imminent increase in rates in interviews at the weekend, Michael Saunders saying households should brace for “significantly earlier” rate hikes and Governor Andrew Bailey expressing concern at how inflation expectations have started to rise.

That’s despite widespread expectations that the economy will slow sharply in the final months of the year due to higher energy prices and benefit cuts reducing households’ disposable income.

This talk drove sterling to a higher level against the euro and dollar in London’s early trading.

5. 6.

Crude oil prices surged to fresh seven-year highs as the localized supply shortages in a number of pockets of the global energy market were intensified by investors seeking protection against ‘stagflation’ by betting on still-higher prices. The CFTC released data on Friday showing that net long speculative crude oil positions rose to the highest levels in eight years.

There was yet more bad news on the supply side over the weekend, as flooding hit a large part of China’s coal belt, hitting production at a string of key mines and squeezing spot markets for alternative fuels still harder. To ease economic pressure on cash strapped utilities, the authorities raised electricity prices to industrial users.

Futures rose 2.8% to $81.58 per barrel by 6:15 ET (1015 GMT) and futures rose 2.2% to $84.20 per barrel at 8:20 AM ET.

Elsewhere, Russia’s ambassador to the EU told the Financial Times that the gas shortage in Europe could be solved quite easily if the bloc would stop view Russia as a “partner” rather than an “adversary”.