LONDON/WASHINGTON (Reuters) - U.S. stock market investors shook off inflation jitters in early trading Monday, sending equities higher while oil slipped.
The Dow Jones Industrial Average rose 0.2%, while the S&P 500 gained 0.16% and the Nasdaq Composite added 0.15%.
The MSCI world equity index, which tracks shares in 45 nations, rose 0.2%.
A surprising report last week on U.S. inflation weighed down markets, as investors wondered if the Federal Reserve might be forced to raise rates sooner to combat price pressures. But the looming holiday season, coupled with potential progress on getting the U.S. economy back to normal after the COVID-19 pandemic, gave some analysts reason for optimism.
“We are getting more people back into the labor force. Vaccination rates are climbing, and Covid therapeutics are getting better every week. Supply chain disruptions will get ironed in time,” wrote National Securities Chief Market Strategist Art Hogan in a note. “We are of the belief that demand has not been destroyed, but rather delayed, elongating the post pandemic well into 2022.”
Yet there was also a note of caution in world markets, with the latest COVID headlines tempering sentiment in Europe and supporting safe-haven bond markets.
Austria slapped a lockdown on people unvaccinated against the coronavirus on Monday as infections rose across Europe, with Germany considering tighter curbs and Britain expanding its booster programme to younger adults.
Expected increased supply, coupled with higher energy costs and COVID-19 weighed on demand, helped drive down crude oil.
Brent crude for delivery was last down 1.36% percent to $81.05 a barrel. U.S. crude was down 1.39%, at $79.67 per barrel.
Elsewhere, the United Nations climate conference in Scotland managed to hammer out a deal on emissions, but only by watering down a commitment to phase out coal.
Safe-haven gold looked set to break a seven-session winning streak, with spot gold prices dipping 0.22%, to $1,859.90 an ounce.
The dollar index, which tracks the greenback versus a basket of six currencies, rose 0.03%.
CENTRAL BANK WATCH
Major central banks’ response to the emergence of inflation pressures also remained in the market spotlight.
Persistent supply chain bottlenecks and soaring energy costs are slowing euro zone growth and will keep inflation high for even longer than had been thought, European Central Bank chief Christine Lagarde said on Monday.
After bond yields rose sharply last week following strong U.S. inflation data, a calmer tone resurfaced in major bond markets.
Benchmark 10-year U.S. Treasury yields rose to yield 1.6059% after jumping 11 bps last week as markets positioned for early monetary tightening by the Federal Reserve.
“On the inflation side, the term transitory isn’t appropriate for the conditions we’re seeing,” said Seema Shah, chief strategist at Principal Global Investors in London.
Reporting by Dhara Ranasinghe in London and Pete Schroeder in Washington; Additional reporting by Wayne Cole in Sydney; Editing by Angus MacSwan, Chizu Nomiyama, William Maclean