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US equities fall as higher oil prices fuel inflation fears

US equities fell on Monday after ending last week’s worst performance since February as an oil price rally added to concerns about inflation and future interest rates.

Wall Street’s blue chip S&P 500 index fell 1.5 percent during New York morning trading. The technology-driven Nasdaq Composite, which is home to companies whose high valuations can make their stock prices more vulnerable to expected interest rate changes, fell 2.4 percent.

“We are in what feels like the opposite of Goldilocks,” said Cosimo Marasciulo, Head of Investment Absolute Returns at fund manager Amundi, referring to an economic environment with healthy growth but contained inflation. “We could get upward pressure on inflation and interest rates.”

In Europe, the Stoxx 600 index lost 0.4 percent at the close of trading, after falling 2 percent last week. Hong Kong’s Hang Seng Index closed the day 2.2 percent lower.

Those stock market moves came as Brent crude rose 3.1 percent to a three-year high of $ 81.74 a barrel as producer group Opec + stuck to existing production plans at its last meeting despite a surge in natural gas prices that increased oil demand . Members agreed this summer to add 400,000 barrels per day of production each month until the end of next year.

West Texas Intermediate, the US oil benchmark, hit its highest level since 2014 at $ 78 a barrel.

The benchmark 10-year US Treasury bond yield, suppressed by the massive purchase of Treasuries by a Federal Reserve looking to cut borrowing costs through the pandemic, rose 0.04 percentage points to 1.505 percent.

That yield, which is reversing the rate of the note, is up about 1.3 percent in late September as ongoing inflation and improvements in the labor market fueled Fed expectations to cut its $ 120 billion monthly stimulus package .

U.S. economic performance is expected to weaken in the first few months of the year following a coronavirus vaccine-driven boom. Investors, meanwhile, have been gripped by the prospect of economic stagflation amid high energy prices and severe supply chain disruptions from pandemic restrictions and labor shortages.

Fed Chairman Jay Powell has signaled that the central bank will announce plans in November to cut its monthly bond purchases after seeing advances in the job market.

The next US non-farm payroll report out Friday would “likely be the catalyst to solidify the November extension,” said Deutsche Bank strategist Jim Reid. Analysts polled by Bloomberg expect US employers to have hired nearly half a million new workers in the past month.

The dollar index, which measures the US currency against six others, fell 0.3 percent after hitting a year-long high last week. The pound sterling rose 0.4 percent to $ 1.3602.

The New Zealand dollar gained 0.4 percent against its US counterpart to $ 0.697. The Reserve Bank of New Zealand, which is holding its next monetary policy meeting on October 6, is widely expected to raise borrowing costs by a quarter of a percentage point to combat rising inflation.

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