scorecardGlobal stocks trade cautiously as inflation worries niggle and as investors weigh Russia shut out from OPEC deals
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Global stocks trade cautiously as inflation worries niggle and as investors weigh Russia shut out from OPEC deals

George Glover   

Global stocks trade cautiously as inflation worries niggle and as investors weigh Russia shut out from OPEC deals
Investment3 min read
  • Global stocks stuttered Wednesday as inflation uncertainty continued to spook investors.
  • US futures swung between gains and losses, with the Fed set to begin cutting its balance sheet.

Global stocks stuttered Wednesday thanks to worries about the Federal Reserve's tightening plans and the prospect of OPEC shutting Russia out of its crude oil output agreements.

With the Fed set to start tightening its balance sheet later today, investors are focused on the risk to economic growth from central banks' moves to tackle rising inflation.

US stock futures were swinging between gains and losses in premarket trading. Futures on the Dow Jones were up 128 points, or 0.39%, and those on the S&P 500 were 0.15% higher, at last check. Nasdaq futures were broadly flat.

The MSCI World Index was up around 0.05%, but European stocks fell after eurozone inflation hit a record 8.1%. The pan-continental STOXX 600 slipped 0.35%, but Frankfurt's DAX 40 was up 0.31%. London's FTSE 100 fell 0.38%.

Renewed concerns about high rates of price rises have weighed on equities. The focus is on whether the Fed will continue to make bigger 50 basis point interest rate hikes as it tries to tame four-decade high inflation.

Central bank policymaker Raphael Bostic believes there will be a "significant reduction in inflation" this year, the Atlanta Fed president told MarketWatch in a Tuesday interview. Bostic also said the idea of a "Fed put" — that the central bank will step in to rescue stock investors if needed — is not a factor in his policy thinking.

On Wednesday, the Fed will begin reducing the size of its balance sheet in its quantitative tightening (QT) program. It plans to cut assets by up to $47.5 billion a month until September, and then ramp up to $90 billion a month.

The central bank hasn't done QT on this scale before, and the prospect has spooked investors over the past few months, with JPMorgan CEO Jamie Dimon saying it'll be an unprecedented headwind for markets. But analysts told Insider the risks have likely already been priced in.

"It's a mechanism the Fed can be disciplined around — they can test $75 billion, $90 billion, or $100 billion a month and see how it impacts markets," Alexander Chaloff, co-head of investment strategies at Bernstein Private Wealth Management, told Insider. "But markets are behaving as if they're expecting that the Fed won't get it right."

Bond yields rose again as investors digested Fed Gov. Christopher Waller push for multiple half-point rate hikes. The 10-year Treasury was up 2.88 basis points, or 1.41%.

Surging oil prices have helped drive inflation higher, but fell back from three-month highs after The Wall Street Journal reported some OPEC members are looking at exempting Russia from the group's oil output-quota deal. That would pave the way for other members to increase their production more aggressively, if the report is confirmed at the OPEC+ meeting later today.

"The OPEC+ meeting, based on the WSJ article, has now transformed from the monthly business-as-usual event to a potential structural turning point for oil markets," Jeffrey Halley, market strategist at Oanda, said in a note.

But uncertainty about the OPEC move was heightened by Russia's foreign minister, Sergey Lavrov, praising its continued cooperation with the group on a visit to Saudi Arabia on Wednesday.

Brent crude was up 1.35% to $117.18 a barrel on Wednesday, while WTI crude rose 1.29% to $116.15 a barrel.

In Asia, Tokyo's Nikkei 225 was up 0.65%, but Hong Kong's Hang Seng and the Shanghai Composite fell 0.56% and 0.13% respectively.

Higher bond yields lifted the dollar by 0.16%. Gold, meanwhile, fell 0.78% to $1,834 an ounce.

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