European stock markets were mixed on Monday after Michael Saunders, an external member of the Bank of England’s (BoE) monetary policy committee, said over the weekend he expects the cost of borrowing to go up “significantly earlier” than currently forecast.
In London, the FTSE 100 (^FTSE) powered ahead compare to its continental peers, closing 0.7% higher, and led by the big miners as aluminium hit a new 13-year high, driven by rising energy and raw material costs.
It came after BoE governor Andrew Bailey earlier suggested that there could potentially be a very damaging period of higher inflation ahead if policy makers didn’t react.
“[Saunders] isn’t alone in thinking along these lines either after new chief economist Huw Pill voiced concerns over longer lasting inflation, something that the UK tends to be especially vulnerable to, while governor, Andrew Bailey, also appears to be leaning in that direction as well,” explained Michael Hewson, analyst at CMC Markets.
Watch: What is inflation and why is it important?
Inflation data due on Wednesday this week is expected to show price pressures remained elevated in the US last month.
Salman Ahmed, at Fidelity International, said: “We see rising risks to global growth and evidence of more persistent inflation, which makes us more cautious on the outlook for global markets overall.”
On Friday, the US economy added just 194,000 jobs in September, far fewer than the 500,000 expected. It was the second missed forecast in a row, casting doubts over the labour market's recovery.
Nonfarm payrolls increased 194,000 last month after an upwardly revised 366,000 gain in August, the Labour Department report showed.
However, the jobless rate fell from 5.2% to 4.8%, while average hourly earnings jumped.
Rising Treasury yields also lifted the dollar to a near-three-year peak against the Japanese yen.
The drop in the yen provided a welcome boost to Japan's Nikkei, which reversed early losses in the session. It was also helped by comments from new prime minister Fumio Kishida who said over the weekend that he is not currently considering changes to the country’s capital-gains tax.
This comes with just 20 days remaining until the country’s general election.
Oil prices also extended their bull run, with gains across the energy complex stoking inflation concerns. Brent crude (BZ=F) jumped as much as 1.7% this morning to around $83.84 per barrel, the highest since October 2018.
“The barrel of US crude is now trading above the $80 level and given the global energy crunch and a cautious OPEC [Organization of the Petroleum Exporting Countries], there is little that could halt the positive trend, other than worsening growth expectations,” Ipek Ozkardeskaya, senior analyst at Swissquote, said.