Markets have fluctuated hard over the past week as global investors assess the possibility of persistent high inflation. Image Credit: AP

Dubai: As global energy prices rise, so have expectations of inflation among investors worldwide, particular with companies reporting third quarter results in the weeks to come.

Markets have fluctuated hard over the past week as global investors assess the possibility of persistent high inflation, with bond yields in key economies driving jitters for growth-oriented stocks.

Energy costs are a major factor for inflation, and investors will look for hints of this as global firms worldwide report its earnings during the last quarter of the year in the days ahead.

Oil, gas prices soar worldwide

Oil prices have surged more than 25 per cent since late August, with Brent topping $80 a barrel and hitting three-year highs. Natural gas prices in Europe have rocketed as well.

Goldman Sachs analysts evaluate how oil prices have had a neutral effect on overall corporate earnings, with every 10 per cent increase in Brent prices boosting earnings per share marginally.

Goldman Sachs stuck by its bullish year-end forecast earlier this week, predicting stocks would gradually overcome uncertainties that lie ahead for markets.

Markets disregard surging oil prices

As most stock markets rally worldwide, the start of the earnings season next week could further bolster the comeback if corporate profits roll in as expected or better.

The upward movement of markets last week also disregarded surging oil prices and a disappointing jobs report from the world’s largest economy, the US.

A new corporate earnings season kicks off next week with big bank earnings in the US, which is expected to be another strong series of reports, despite some worries about higher costs hurting markets.

Q3 earnings to be strong

Third-quarter earnings are expected to have risen by a quarter year over year, which would be the third-highest growth rate since 2010.

Bank earnings are the main focus next week with JPMorgan Chase, Bank of America, Morgan Stanley, Citigroup and Goldman Sachs set to report.

Analysts are looking ahead to catalysts that could fuel these stocks in the days ahead and they expect loan growth and interest rates to play into the major banks’ reports.

Inflation worries to scare market

While the earnings season should be strong, there are likely to be some warning signs about inflation that could scare the market about the year-end market sentiment and expected performance.

The risks of higher inflation, tapering of bond buying by the US central bank and the probability of a choppy earnings season pose a threat of volatility for market investors’ portfolios.

In the US, the key jobs number on Friday was a major disappointment, as the economy added just 194,000 jobs in September, well below analyst estimate of 500,000.

US jobs report disappoints

On the positive side, the unemployment rate fell to a much lower point than economists forecast. At 4.8 per cent, that’s the same level seen in late 2016.

The September jobs report was the last one before Fed policymakers meet November 2-3, when the market expects tapering to begin or a timeline to be announced.

Although the Fed has made it clear that it does not need a blockbuster jobs report to taper in November, it was still unclear if the number changes the calculations for when and how fast the US Federal Reserve will slow its $120 billion-per-month bond-buying program.

US bond yields rise, dollar weakens

Yields on the benchmark 10-year US Treasury note climbed above 1.6 per cent for the first time since June, the US dollar eased and stocks in the top market slid.

The pan-European Stoxx 600 ended down 0.3 per cent on disappointing US jobs report, yet marked its best week in two months as fears of soaring inflation were tempered.

On the data front, Germany’s trade balance for August came in at positive $15 billion on a seasonally adjusted basis, slightly below a forecast of 15.8 billion euros.

Global stocks drop, currencies rise

MSCI’s all-country world index slid 0.05 per cent, but rose 0.7 per cent for the week. The Dow Jones Industrial Average slipped 0.03 per cent, the S&P 500 slid 0.19 per cent and the Nasdaq fell 0.51 per cent.

The dollar index, which tracks the greenback versus a basket of six currencies, fell 0.076 per cent to 94.105. The euro was up 0.19 per cent at $1.1572, while the Japanese yen traded up 0.56 per cent at $112.2200.

However, all three indexes gained for the week. Global stock indexes turned positive for the week after Thursday’s rally despite widespread selling initially as soaring energy prices and the prospect of sooner-than-expected interest rate hikes to combat inflation rattled investors.