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Stocks pull back as sentiment shifts – Zurich Weekly Oct 4th

Stocks fell for only the second month in 2021 as fears in relation to inflation
and interest rates roiled equity and bond markets. A rally late on Friday
reduced the losses but growth stocks underperformed, with energy the only
sector to notch gains for the week. Concerns from both a monetary and
fiscal perspective in the US were evident. US treasury yields rose as the
policy path of the US Federal Reserve is seen as increasingly hawkish –
albeit from a very loose base.
From a fiscal perspective Treasury Secretary Yellen once again warned that
the debt ceiling would have to be raised for the US government to meet its
obligations, and Biden’s infrastructure plan faltered once more as an
approval vote was delayed. Concerns were somewhat eased on Thursday as
15 Republican Senators joined Democrats to avert a government shutdown,
in a separate issue to the debt ceiling.
In US data, PCE (the Fed’s preferred measure of inflation) came in at a
consensus annualised rate of 3.6% whilst durable goods orders rose 1.8% in
August, well above a consensus estimate of 0.7%. Both measures suggest
that an economic expansion is continuing, although newswires are littered
with consistent reports of supply chain blockages affecting individual
company prospects. Chinese PMI data was mixed, as the services measure
rose back above 50 in September whilst the manufacturing figure dropped
to 57.5 (albeit still in expansion territory). Eurozone equities and bonds took
their lead from the US last week, with both major asset classes posting
negative returns. Inflation rose to 3.4% in September, with the German
component rising to a 29 year high. EU Finance Ministers meet this morning
with the item certain to be top of the agenda..