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Stocks fall as U.S. labour shortages, rising commodity prices stir inflation fears

Stocks across the globe fell on Tuesday as rising commodity prices and labour shortages in the United States prompted fears that despite reassurances from the U.S. Federal Reserve, nearterm price spikes could morph into longer-term inflation.

While the major North American indexes pared losses from session lows in what was Wall Street’s most volatile day in two months, the sell-off that started with technology stocks wound up fairly evenly dispersed across sectors.

Economic data released on Tuesday from the U.S. Labour Department showed job openings at U.S. companies jumped to a record high in March, further evidence of the labour shortage hinted by Friday’s disappointing employment report.

The report suggests labour supply is not keeping up with surging demand as employers scramble to find qualified workers.

Burrito chain Chipotle Mexican Grill Inc. announced it would hike the average hourly wage of its workers to US$15, a further sign that the worker shortage in the face of a demand revival could add fuel to the inflation surge.

That worker shortage, along with a supply drought in the face of booming demand could contribute to what is seen as inevitable prices spikes, which the Fed has repeatedly said are unlikely to translate into long-term inflation.

“The supply chain issues coupled with record stimulus coupled with apparently a tighter labor market have all contributed to fears that inflation could trend higher over the summer months,” said Ryan Detrick, senior market strategist at LPL Financial in Charlotte, N.C.

“I don’t think [the market] believes the Fed when it says they won’t raise rates until after 2023,” Mr. Detrick added.

Market participants will scrutinize the Labour Department’s CPI report, due early Wednesday, for further signs of potential inflationary pressures.

On Tuesday, Cleveland Federal Reserve Bank president Loretta Mester said she expected inflation to end the year at more than 2 per cent but to come down next year as supply constraints ebb.

Philadelphia Fed president Patrick Harker said there are still factors slowing down the recovery in the labour market, and believes the central bank should continue to provide support to the economy.

“[The Fed] have made it very clear that they think it is transitory and ongoing price increases will continue to be transitory, but we are not going to know if they are right about that until much further down the road,” said Bill Merz, head of fixed income research at U.S. Bank Wealth Management in Minneapolis.

“In the meantime, the market is going to make up their own mind and whether investors believe that inflation is transitory is going to make a significant difference in how assets trade and whether the market starts to challenge the Fed to move faster than the Fed would like.”

That tension was seen Tuesday in the CBOE Volatility index, a measure of investor anxiety, which closed at 21.85, its highest level since March 11.

The S&P/TSX Composite Index closed down 87.84 points, or 0.45 per cent, at 19,274.04. Most sectors were lower, with both energy and real estate losing more than 1 per cent. Materials was a bright spot, rising 0.69 per cent, as gold prices held steady and copper didn’t stray too far from record highs on Monday.

The Dow Jones Industrial Average fell 473.66 points, or 1.36 per cent, to 34,269.16, the S&P 500 lost 36.33 points, or 0.87 per cent, to 4,152.1 and the Nasdaq Composite dropped 12.43 points, or 0.09 per cent, to 13,389.43. Inflation is generally perceived as having the greatest risk to the highflying technology growth stocks of the Nasdaq.

Of the 11 major sectors in the S&P 500, only materials ended the session green. Energy suffered the largest percentage loss, closing down 2.6 per cent.

Yields on longer-dated Treasuries were up for a third straight day, with the yield on 10-year Treasury note up 2.1 basis points at 1.624 per cent. Yields on Canadian bonds edged higher as well.

Oil prices settled higher, as lingering fears of gasoline shortages owing to an outage at the largest U.S. fuel pipeline system after a cyberattack brought futures back from an early drop of more than 1 per cent.

U.S. West Texas Intermediate crude futures rose 36 US cents, or 0.6 per cent, to end the session at US$65.28.

Economic data released on Tuesday from the U.S. Labour Department showed job openings at U.S. companies jumped to a record high in March, further evidence of the labour shortage hinted by Friday’s disappointing employment report.

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2021-05-12T07:00:00.0000000Z

2021-05-12T07:00:00.0000000Z

https://globe2go.pressreader.com/article/282007560274305

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