What drove the market?

Monday’s pullback in equities came as Treasury yields jumped across the board on expectations that the Federal Reserve may have to taper its monthly bond purchases at a faster-than-anticipated pace, given signs of persistent inflation. Tapering is the prerequisite first step before a rate increase, and policy makers could facture next year over when to deliver the first hike.

“We see equities as a potential buffer against inflation because we expect a more muted response of yields to inflation than in the past,” according to Jean Boivin and others at the research arm of BlackRock Inc., the world’s largest money manager. “Real, or inflation-adjusted, yields should remain low or negative as a result, making equities attractive. In addition, many companies so far have been able to pass on higher input costs and keep their margins intact.”

See: Why the hottest inflation in 3 decades isn’t rattling stock-market bulls

All three major stock indexes dropped on Monday after having started out on a relatively bullish footing, with a report on New York state manufacturing activity boosting sentiment on Wall Street.

The New York Fed’s Empire State manufacturing business conditions index rose 11.1 points to 30.9 in November, the regional Fed bank said Monday. Economists had expected a reading of 22, according to a survey by The Wall Street Journal.

Strong third-quarter earnings have been a pillar of this recent run-up in equities, with consumers central to the economic rebound from the debilitating COVID-19 crisis.

Last Friday’s University of Michigan consumer-sentiment survey showed inflation weighing on consumer attitudes, though it isn’t clear that will translate into weaker spending. The October retail sales report is due Tuesday, and the median forecast of economists is for a 1% gain in the reading that excludes autos.

“Supply chain pressures are easing and should allow equities to continue to deliver strong revenue growth and record margins,” wrote analysts led by JPMorgan Chase & Co.’s Marko Kolanovic, chief global markets strategist. “Even for the cohort that faces meaningful disruptions, we expect these issues to largely abate” by the second half of 2022, “resulting in delayed revenues rather than demand destruction.”

The inflation backdrop makes the next choice of Federal Reserve chair all the more important politically for President Joe Biden. The Wall Street Journal reported that Biden is said to be deciding between reappointing Chairman Jerome Powell or choosing Fed Gov. Lael Brainard as early as this week. Biden interviewed both candidates earlier this month, and the meeting with Brainard was described by people familiar with the matter as going better than expected, the report said.

Biden also signed the $1 trillion infrastructure bill into law Monday afternoon. He’s also due to hold a virtual meeting with Chinese President Xi Jinping in the evening.

Meanwhile, European Central Bank President Christine Lagarde told the European Parliament that the central bank expects inflation to moderate next year, though prices will take longer to decline than originally expected. She also said that it was “very unlikely” conditions would be met by next year that would allow for an interest-rate hike. European inflation data is due for release this week.

Which companies were in focus?

Share of WeWork Inc. WE were in focus after the flexible workspace company reported its first quarterly report since going public last month through a merger with a special-purpose acquisition company, or SPAC, with losses narrowing but revenue falling. WeWork shares rose 3.4%.

Shares of Boeing
BA,
+5.49%
 rallied 5.5% after the company said it signed an order with Icelease for 11 of its 737-800 Boeing Converted Freighters, while logistics company DHL Express placed an order for nine more 767-300BCF and Emirates announced an order for two 777 Freighters.

Oatly Group AB OTLY shares plunged 20.8% in Monday trading after the plant-based beverage company reported a third-quarter revenue miss and issued a revenue warning for the year. 

Restaurant Brands International Inc. QSR said Monday that it has agreed to acquire Firehouse Subs, a sub sandwich chain founded in Jacksonville, Fla., for $1 billion in cash, funded through cash-on-hand and debt. Restaurant Brand shares rose 2.1%.

How were other assets faring?

The yield on the 10-year Treasury note TMUBMUSD10Y rose 3.8 basis points to around 1.621%, the highest in three weeks based on 3 p.m. levels, according to Dow Jones Market Data. Yields rise while prices fall and vice versa.

The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was up around 0.4% on Monday and trading at the highest level in more than a year.

The U.S. WTI oil contract CLZ21 for December settled at $80.88 a barrel, gaining 0.1%. December gold futures GC00 retreated 0.1% to settle at $1,866.60 an ounce, the first loss in eight sessions.

The Stoxx Europe 600 XX:SXXP finished 0.4% higher on Monday, reaching a record close. London’s FTSE 100 UK:UKX closed higher by less than 0.1%.

Hong Kong’s Hang Seng Index HK:HSI finished 0.3% higher, while China’s CSI 300 Index XX:000300 closed down by 0.1% on Monday. Japan’s Nikkei 225 JP:NIK finished 0.6% higher on the day.