Rising oil prices inflame inflation fears

Rising oil prices inflame inflation fears

Norway is making more money from oil and gas exports than ever.

Ole Berg-rusten | Afp | Getty Images

This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

What you need to know today

Mixed markets in Asia
U.S. stocks fell Tuesday, weighed down by higher oil prices and rising Treasury yields. Asia-Pacific markets traded mixed Wednesday. Australia’s S&P/ASX 200 slumped 0.72% even though the country’s economy grew a more-than-expected 2.1% in the second quarter, on a year-on-year basis. Japan’s Nikkei 225 added 0.43% as the yen slid to 147.34 against the dollar, a 10-month low.

Chinese property stocks soar
Shares of Evergrande rocketed over 70%, leading gains on Hong Kong’s Hang Seng Index. The move comes after Country Garden reportedly paid $22.5 million in interest payments on two U.S. dollar bonds on Tuesday, narrowly avoiding default. Other Chinese property stocks rallied too, making real estate the top gainer on the HSI.

All eyes on Arm
Chip designer Arm will list 95.5 million shares between $47 and $51 apiece, according to an updated filing for its initial public offering on the New York Stock Exchange. That gives the company a valuation of up to $52 billion. Tech giants like Alphabet, Apple, Nvidia and semiconductor companies like Intel, Samsung and TSMC are all interested in buying Arm shares.

From crypto keys to nuclear codes
North Korea-linked hackers have stolen crypto worth $200 billion, according to blockchain intelligence firm TRM labs. The theft, which occurred between Jan. and Aug. 18, “coincided with an apparent acceleration in the country’s nuclear and ballistic missile programs,” said TRM Labs, suggesting that the North Korean regime is using those gains to fund its weapons program.

[PRO] Oversold and overbought stocks
The relative strength index measures the speed and magnitude of stock price moves. It can signal if a stock is oversold, which means it’s poised for a bounce, or overbought, suggesting that it’s expensive. CNBC Pro screened the MSCI World index to find out the most oversold and overbought global stocks with a market value of at least $10 billion, highlighting buying opportunities — and warning signs.

The bottom line

Even as Federal Reserve Governor Christopher Waller acknowledged to CNBC’s Steve Liesman that economic signs have been encouraging lately — we’ve “a hell of a good week of data” on the inflation front — he emphasized it’s more important to see if prices continue dipping in the long term.

“We got two good reports in a row,” Waller said. The key now is to “see whether this low inflation is a trend or if it was just an outlier or a fluke.”

However, with Saudi Arabia and Russia’s oil supply cuts, there’s a danger that the previous months of low inflation might be an outlier. After the news broke, October contracts for West Texas Intermediate rose to $86.68 per barrel and November contracts for Brent hit $90.03 a barrel, the highest levels for both in 10 months.

“Rising oil prices really feeds into the story about inflation,” said Bill Merz, head of capital market research at U.S. Bank Wealth Management. “And the story about inflation feeds into bond yields and a story about the Fed and what the Fed is going to do.”

Indeed, U.S. Treasury yields climbed on the news, because stronger inflationary pressures suggest higher — or at least persistently high — interest rates for longer. The yield on the 10-year and 2-year Treasurys jumped around 9 basis points to close at 4.266% and 4.96% respectively.

Higher Treasury yields and rising oil prices were bad news for stocks (except for those in the energy sector, like Halliburton and Occidental Petroleum, which added more than 2%). Even Goldman’s call that a U.S. recession is increasingly unlikely this year couldn’t lift investors’ sentiment.

Major indexes ended the first trading day of a holiday-shortened week lower. The S&P 500 lost 0.42%, the Dow Jones Industrial Average dropped 0.56% and the Nasdaq Composite slipped 0.08%. Additionally, the Russell 2000 index of small-cap stocks fell 2.1%, its worst performance since April 25.

It’s only one data point — so it could be an outlier or a fluke, as Waller put it — but September, true to its reputation, already seems a tough month for stocks.