Hideyuki Sao

TOKYO, Reuters – The global stock market retreated from their record highs as a reminder that supply chain snags in earnings reports by corporations slowed the rally. Investors also considered whether central banks might tighten monetary policy sooner than they thought.

MSCI’s indicator of world stocks (ACWI), fell 0.05% ()Early Thursday trade saw leading losses of 1.1% and 2.9% respectively

China’s shares fell 0.2%, while MSCI’s largest index of Asia-Pacific shares outside Japan ticked up 0.1%.

Wall Street saw a 0.51% drop in overnight trading compared to Tuesday’s record high, although the Nasdaq closed little different due to solid earnings by Microsoft (NASDAQ) and Google parent Alphabet.

Yet, earnings reports show that the United States’ largest manufacturers include General Motors (NYSE). General Electric 3M (NYSE:), Boeing (NYSE;) all face logistic challenges and higher costs because of global supply chain bottlenecks. This will continue to the next year.

GM suffered a 5.4% drop in earnings on Wednesday.

Japan’s robotics manufacturer Fanuc (OTC-:) plunged 8.5% in Asia while Fujitsu, an IT conglomerate, lost 9.8%. The impact of the chip shortages had a greater than expected effect on Fujitsu’s earnings.

The market believes that chip shortages will diminish by year’s end. Investors will feel less confident about their outlook if the problem persists next year,” stated Masayuki Murata, Sumitomo Life Insurance’s general manager of balanced portfolio investments.

Investors are closely watching to see if the central banks around the globe will reduce their large-scale pandemic stimulative measures faster, as global supply disruption is fueling concerns about inflation.

The Bank of Canada announces that its quantitative easing program was ended sooner than it expected, and may increase interest rates before previously believed.

BoC action has fueled expectations that the U.S. Federal Reserve could also move quicker towards rate increases. Fed funds rate futures price in two rate rises before 2022.

Nearly everyone expects that the Fed will announce tapering its bond purchases at its next policy meeting.

In the last two years, U.S. Treasuries yield reached 0.528%. The yield was 0.266% at the beginning of October.

However, yields on longer dates fell because of tighter monetary policies that are likely to reduce inflation.

Ten-year U.S. Note Yields fell to 1.545% from a peak of 1.705% reached a week ago.

A plunge in UK Gilts Yields also contributed to global bond yields falling after Britain cut its borrowing forecasts further than it expected.

Tuesday’s 12.8 basis point decline in the yield on 10-year Gilt was its worst since March 2020. It fell to 0.982%.

After the BoC surprise, the Canadian dollar maintained its value at C$1.2362 per $1 on foreign exchange markets.

The Bank of Japan and European Central Bank made policy announcements later that day. However, no significant changes were expected.

At 113.73 USD, the yen is off its low of 114.695 for four years. Last week’s euro exchanged hands at $1.1600.

After oil stocks rose faster than anticipated, prices for oil fell. However fuel inventories declined and the largest national storage facility emptied more. [O/R]

Investors were able to take advantage of the larger-than-expected increase in U.S. crude stockpiles and to sell long positions. Strong gains over recent weeks have pushed both U.S. crude benchmarks up to multi-year highs.

Brent dropped 1.8% to $83.07 a barrel. This is compared with Monday’s 7-year peak of $86.70. U.S. crude was $81.25 a barrel. It fell 1.7% from Monday’s peak price of $85.41, which was a seven year high.