Stocks dip amid inflation woes, oil drops on concerns of oversupply, demand

The prospects of speedier interest rate hikes from the Federal Reserve and ongoing supply chain disruptions weighed on Wall Street, while oil dropped on concerns of oversupply and dwindling

The prospects of speedier interest rate hikes from the Federal Reserve and ongoing supply chain disruptions weighed on Wall Street Wednesday, while oil dropped on concerns of oversupply and dwindling demand.

U.S. stocks spent most of the trading day in negative territory, after a Tuesday boost driven by better than expected U.S. retail numbers. Rising inflation and potent consumer demand suggested to investors the Fed could hike rates quicker, while supply chain concerns drove down retailers like Target and Walmart.

"The good news for investors is that aggregate demand appears to be weathering the surge in inflation so far," wrote Bank of America analysts in a note. "The bad news is that the combination of robust demand and a large supply shock makes a strong case for Fed tightening."

The Dow Jones Industrial Average was down 0.51%, the S&P 500 lost 0.16% and the Nasdaq Composite dropped 0.17%.

The MSCI world equity index, which tracks shares in 45 nations, dropped 0.25%.

Global equities have seen inflows of around $1 trillion during the last 51 weeks as positive news on coronavirus vaccines emerged, Goldman Sachs said in a note, adding this year has already seen four times the inflows of the previous best year.

"The understandable growing attraction of real assets (those that provide some hedge against inflation) is pushing up equity index levels and driving investors to move increasingly away from negatively yielding cash and bonds," the strategists said.

The dollar also took a step back Wednesday, after hitting a 16-month high earlier in the week agaisnt a basket of other major currencies. The dollar index, which measures the currency against a basket of six rivals, drifted 0.11% lower to 95.836 after earlier touching 96.266 for the first time since mid-July 2020.

Benchmark 10-year Treasury yields also drifted lower Wednesday, dipping to 1.608%.

Safe-haven gold got a boost as investors bet on a rate hike with spot prices rising 0.79% to $1,864.53 an ounce.

OIL SINKS

Oil prices continued to struggle to post gains, as dual concerns of oversupply and dwindling demand in Europe due to rising COVID-19 cases weighed down the commodity.

The IEA and the Organization of the Petroleum Exporting Countries both said this week that more supply could be on the way in coming months, with OPEC and its allies - known as OPEC+ - seeking to maintain a steady increase in output. Other nations, including the United States, have called for OPEC+ to boost output more swiftly.

And U.S. crude oil inventories fell by 2.1 million barrels last week, as President Joe Biden's administration, sensitive to rising fuel prices, has considered an emergency release of oil from the U.S. Strategic Petroleum Reserve (SPR), though the SPR is generally used during natural disasters or supply disruptions usually caused by wars.

Brent crude was last down 2.66%, at $80.24 a barrel. U.S. crude was down 3.17% at $78.20 per barrel. O/R]

(Reporting by Tom Wilson in London, Alun John in Hong Kong and Pete Schroeder in Washington; Editing by Nick Zieminski and Kirsten Donovan)