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Stocks stalled as oil fuels inflation nerves

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November 10, 2021

By Tom Westbrook

SYDNEY (Reuters) – Asian stockmarkets were tugged lower by fresh concern about the solvency of China’s property developers on Wednesday, while a surging oil price added to worries that a hot U.S. inflation reading could renew pressure on policymakers to lift rates.

Brent and U.S. crude futures extended gains into a fourth session, hitting two-week highs around $85 a barrel. Another warning came from Chinese factory gate prices, which are gaining at their fastest clip in a quarter century.

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S&P 500 futures fell 0.4%. FTSE futures and European futures each lost 0.2%. At 1330 GMT, U.S. inflation figures are expected to show consumer prices galloping ahead at 5.8% year-on-year, the fastest pace in a generation.

Even dovish Federal Reserve officials have conceded it is running hotter for longer than they thought.

“These inflation numbers are unlikely to make anyone feel comfortable,” said ING economist Rob Carnell. “Inflation higher for longer than expected is becoming the market’s considered opinion right now, and its likely we get reinforcement of that.”

Ahead of the data U.S. equities snapped a long winning streak with modest falls on Tuesday and on Wednesday MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.6%. Japan’s Nikkei fell 0.5%.

Longer-dated Treasuries have rallied in recent sessions, flattening the yield curve as investors wager on hikes in the next year or so squashing growth in the years beyond. [US/]

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Treasuries dipped a bit in Asia hours, lifting the benchmark 10-year yield about 2 basis points to 1.4626% after it had touched a six-week low of 1.4150% on Tuesday.

Currency markets have been fairly quiet but traders favoured safe havens on Tuesday and lifted the yen to a one-month high.

The Japanese currency held there on Wednesday at 112.84 per dollar and risk-sensitive currencies such as the Australian dollar were under pressure, with the Aussie falling through its 50-day moving average to $0.7366. [FRX/]

“The dollar will be sensitive to moves in the 2-5 year part of the U.S. Treasury curve,” said Chris Weston, head of research at broker Pepperstone in Melbourne.

“I think we’ll need to see a (monthly U.S. CPI) print of 0.8% to see the dollar index break out of the top of the range of 94.50,” he said. The index was last steady at 94.045.

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CLOUDS

China’s economic slowdown is also nagging on investors’ minds, especially as a credit crunch seems to be quickly spreading through the giant property industry.

Bonds in the sector have suffered a fresh drubbing and on Wednesday shares in developer Fantasia Holdings halved upon return from a six-week trading halt as the company warned it might not be able to meet its debt obligations.

A gloomy demand outlook has pushed iron ore to a 19-month low selling in banks and property stocks in Hong Kong pulled the Hang Seng down 1% to a one-month low. [.HK][IRONORE/]

“(The) market is now driven more by fear rather than rationale,” said analysts at J.P. Morgan. “Valuations have factored in (the) worst case scenario.”

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Other clouds are also gathering, with a survey in Japan showing manufacturers’ business confidence has fallen to a fresh seven-month low and Tesla stock, a bit of a gauge of retail investors’ sentiment, turning wobbly.

The carmaker, which has been the poster-stock of equities’ thumping rally from pandemic lows, suffered its sharpest share price fall in 14 months on Tuesday as traders brace for a possible sale from company chief Elon Musk.

Gold and bitcoin have been the primary beneficiaries of the market turbulence, with gold up about 3.5% in a week to $1,826 an ounce and bitcoin hovering at $66,400 after hitting a record of $68,564 a day ago.

(Reporting by Tom Westbrook; Editing by Michael Perry and Sam Holmes)

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Wood’s ARK fund fails to join broad market rally as lockdown stocks slip

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November 30, 2021

By David Randall

NEW YORK (Reuters) – The broad market relief rally on Monday left many so-called stay-at-home stocks behind, dealing another blow to Cathie Wood’s ARK Innovation fund.

The $18.6 billion ARK Innovation fund, which outperformed all other U.S.-based equity funds last year due to its outsized holdings of stocks that rallied during the economic lockdowns, dropped 0.5% in morning trading Monday, well behind the 1% gain in the S&P 500.

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The benchmark index dropped nearly 2.3% Friday on news a new coronavirus variant, now known as Omicron, had been identified in southern Africa, spurring new travel restrictions worldwide. Yet global equity markets made up some of that lost ground Monday on reports the new variant may produce mild symptoms.

Signs Omicron will not deal a severe blow to the economy are prompting investors to remain in cyclical stocks, said Phil Orlando, chief equity market strategist at Federated Hermes.

“This is not February of 2020 when the world is about to shut down. If anything we think the economy will continue to improve from here,” he said.

ARK Innovation’s declines were widespread Monday, with 8 out of the fund’s 10 largest holdings down for the day. Telemedicine company Teladoc Health Inc, the fund’s second-largest holding, fell 5.1%, while streaming company Roku Inc shed 2.6% and Zoom Video Communications Inc lost 3.2%.

For the year, ARK Innovation is down 14%, while the benchmark S&P 500 is up 23.4%. That underperformance places ARK Innovation among the worst-performing mid-cap growth funds for the year to date, according to Morningstar. It remains among the top-performing funds over the last 5 years.

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Ark did not respond to a request to comment for this story.

(Reporting by David Randall; Editing by Mark Porter)

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Oil prices rise on bets OPEC+ will hold off output hike

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November 30, 2021

By Sonali Paul

MELBOURNE (Reuters) – Oil prices climbed on Tuesday, extending a rebound from last week’s plunge on growing expectations major producers would pause plans to add crude supply in January amid uncertainty over the severity of the Omicron coronavirus variant.

U.S. West Texas Intermediate (WTI) crude futures jumped 99 cents, or 1.4%, to $70.94 a barrel at 0105 GMT, adding to a 2.6% rise on Monday.

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Brent crude futures climbed 82 cents, or 1.1%, to $74.26 a barrel, after gaining 1% on Monday.

Oil plunged around 12% on Friday along with other markets on fears the heavily mutated Omicron would spark fresh lockdowns and dent global growth.

The World Health Organization said on Monday Omicron posed a very high risk of infection surges, and several countries stepped up travel curbs. It is still unclear how severe the new variant is and whether it can resist existing vaccines.

With the demand outlook under a cloud, expectations are growing that the Organization of the Petroleum Exporting countries, Russia and their allies, together called OPEC+, due to meet on Dec. 2 will put on hold plans to add 400,000 barrels per day (bpd) of supply in January.

“We think the group will lean towards pausing output hikes in light of the Omicron variant and the oil stockpile release by major oil consumers,” Commonwealth Bank commodities analyst Vivek Dhar said in a note.

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Pressure was already growing within OPEC+ to reconsider its supply plan after last week’s release of emergency crude reserves by the United States and other major oil-consuming nations to address soaring prices.

“Following the global strategic reserve releases and the announcement of dozens of countries restricting travel to and from South Africa and neighbouring nations, OPEC and its allies can easily justify an output halt or even a slight cut in production,” OANDA analyst Edward Moya said in a note.

Also weighing on the market is the prospect of a resumption of oil exports from Iran, following upbeat comments from diplomats as talks resumed on Monday between world powers and Iran on reviving a nuclear pact.

(Reporting by Sonali Paul. Editing by Gerry Doyle)

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Main IKEA retailer’s profits jump despite ‘unprecedented challenges’

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November 30, 2021

By Anna Ringstrom

STOCKHOLM (Reuters) – Ingka Group, the owner of most IKEA stores world-wide, reported on Tuesday a jump in annual profit on the back of record demand for home furnishing as people stay at home more due to the pandemic.

Despite more temporary store closures due to pandemic related restrictions than the year before, and product shortages due to the global supply chain crisis, operating profit in the 12 months through August was up 31% at 1.9 billion euros. Sales were up 6%, to above pre-pandemic levels, with online sales jumping to account for 30% of total sales, against 18% the year before.

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Compared to the pre-pandemic fiscal 2019, profit was still down, by 8%, due to high investment levels. Capital expenditure was up 52% on the year, at 3.2 billion euros, as Ingka accelerated investments in digitalisation, new inner-city store formats, existing stores, and distribution and delivery networks.

Chief Financial Officer Juvencio Maeztu told Reuters he expected sales to grow also in the current fiscal year, and profits to be at least as high as in the past year. Investment levels would probably remain at least as high as in the past year, he said.

“Our journey to create a better IKEA forges ahead in a world that faces unprecedented challenges. COVID-19 will continue to impact our business and the communities we are a part of,” the company said in a statement.

“The global supply and transport crisis will require a resilient, flexible response. Efforts across the value chain will continue to mitigate the challenges with product availability, inflation, prices of raw materials and transport that are expected to continue into FY22.”

Budget furniture brand IKEA operates through a franchise system, with Ingka the main franchisee to brand owner Inter IKEA with 392 stores including city stores, and 73 smaller store formats.

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Inter IKEA, which is in charge of design and supply, in the past year absorbed substantially higher costs for raw materials and transports, but has flagged it will raise prices to its retailers this year in the face of continued high supply related costs.

Ingka’s Maeztu said in the interview that he could not rule out that Ingka would also raise prices this year.

(Reporting by Anna Ringstrom; editing by Richard Pullin)

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