US shares slipped on Tuesday in choppy trade, as investors waited for businesses to report how rising prices have hit their latest earnings, while bond yields spiked and the dollar shone on bets that monetary policy will soon be tightened.
Indeed, two US Federal Reserve policymakers said on Tuesday that the central bank has kept pace with a planned move to reduce its bond-buying programme, cementing expectations that the Fed will start withdrawing its crisis-era stimulus as soon as next month.
Soaring oil prices largely held on to recent gains, while US stock indices vacillated repeatedly between modest gains and losses before a flurry of third-quarter bank earnings reports from Wall Street on Wednesday and Thursday.
After watching oil prices steadily gallop higher in the past 18 months, many investors now worry that rising prices are exacerbating supply bottlenecks, weighing on businesses and crimping economic growth, reports Reuters.
Coal prices are at a record peak, and while gas prices are off recent highs, they remain four times higher in Europe than at the start of the year.
The impact of supply crunches in power and manufacturing components is showing up in data - figures on Tuesday showed Japanese wholesale inflation hit 13-year highs last month, British shoppers slashed spending, China recorded a 20 per cent drop in car sales, and bottlenecks dragged German economic sentiment down for the fifth month.
"We are in a sort of a holding pattern until we see the results," said Peter Kenny, founder of Kenny’s Commentary LLC and Strategic Board Solutions LLC in New York.
"We are seeing some downgrades on US growth, and the impact on businesses will be the thing to watch."
The Dow Jones Industrial Average fell 0.34 per cent, the S&P 500 lost 0.24 per cent, and the Nasdaq Composite dropped 0.14 per cent.
The pan-European STOXX 600 index lost 0.07 per cent and MSCI's gauge of stocks across the globe shed 0.31 per cent.
Oil prices were mostly steady. US crude was little changed at $80.50 per barrel, while Brent crude rose above $84 a barrel briefly before shedding 0.5 per cent at $83.27.
With businesses hit by persistent supply chain disruptions and inflation pressures, the International Monetary Fund warned on Tuesday that the global economy's recovery from the COVID-19 pandemic is being constrained, and cut growth outlooks for the United States and other major industrial powers.
Given rising expectations that accelerating inflation will prompt central banks such as the Fed to rein in ultra-loose policies, benchmark bond yields rose in anticipation of tighter monetary conditions.
Two-year Treasury yields, which have climbed as much as 100 basis points in October along, jumped to 0.3419 per cent, a level last seen in March 2020.
In keeping with concerns that soaring prices could crimp economic activity and prompt central banks to raise interest rates down the road, the yield curve flattened, and benchmark 10-year yields retreated to 1.5751 per cent, from 1.605 per cent late on Friday.
All those concerns, alongside rising Treasury yields, supported demand for the dollar. The dollar index stayed at one-year highs and stood near a three-year peak against the yen.
The dollar index rose 0.149 per cent, and a stronger dollar nudged the euro down 0.27 per cent to $1.1526. The Japanese yen weakened 0.31 per cent versus the greenback to 113.62 per dollar.
Gold, usually seen as a hedge against inflation, shone on Tuesday despite dollar strength.
Spot gold added 0.3 per cent to $1,759.85 an ounce. US gold futures gained 0.34 per cent to $1,760.60 an ounce.