Stagflation Concerns Rattle Global Markets Amid Rising Inflation

The specter of stagflation loomed over global markets on Thursday after the release of unexpected inflation data in the U.S., applying pressure on U.S. Treasuries and catalyzing a global sell-off of government bonds. This economic uncertainty also saw a drop in Wall Street stocks, with futures contracts tracking the Russell 2000 falling by 1.2% after new producer price data showed a larger-than-expected increase.

The U.S. producer price index, up by 0.9% in July, surpassed forecasts and ignited concerns, particularly due to potential inflationary pressure stemming from trade tariffs. Despite initial gains, European stocks remained slightly elevated, while the S&P 500 was poised to drop. Reflecting monetary policy expectations, two-year Treasury yields jumped 4.3 basis points, as hopes for significant rate cuts diminished.

While markets still anticipate a reduction in Federal Reserve borrowing rates, the likelihood of a substantial 50-basis point cut has dwindled. Meanwhile, investors are on alert for rising inflation. A Bank of America survey reveals a growing consensus that U.S. stagflation could become a prevailing theme in the coming months, with geopolitical tensions also impacting commodities markets.

(With inputs from agencies.)