LONDON (Reuters) – Global stocks fell straight on Friday, with most of their strong gains for the week staying intact, but the combination of high interest rates, high oil prices and the war in Ukraine kept the risk at bay.
US stocks are also set to pause, as trading on Wall Street is likely to be bumpy due to “triple magic” as investors cancel their positions in futures and options contracts before expiration.
S&P 500 futures slipped 0.6%, with little major data or corporate news ahead of Wall Street’s opening bell to distract investors from headlines about the war in Ukraine or allay underlying concerns about rising inflation.
Register now to get free unlimited access to Reuters.com
US President Joe Biden held talks with his Chinese counterpart Xi Jinping at 1300 GMT, and the White House is expected to issue a warning that Beijing will pay a price if it supports the Russian war effort. Read more
MSCI World Stock Index (.MIWD00000PUS.) It was down 0.2% at 694 points, still up more than 5% for the week but well below its life high of 761.21 from Jan.
Markets have been nervous, said Tom O’Hara, portfolio manager at Janus Henderson, as investors fear they will miss any further rebound in stocks, or that the economy is heading into stagflation.
“No matter how I look at it, the situation is challenging the growth narrative that we’ve had over the past 10 years. We haven’t had inflation, so it hits an environment that most funds haven’t dealt with for a long time,” O’Hara said.
In Europe, Stokes (.stoxx) The index of 600 leading companies is down 0.4% at 449 points, still heading for its best week since November 2020, despite down about 9% from its high in early January.
“Sentiments are still very cautious, they are looking for some reason to rise but are struggling to find something they have a strong conviction in,” said Sima Shah, chief strategist at Principal Global Investors.
From here on out the question has been to watch how the economy develops and how high inflation rises before it peaks, Shah said after the US Federal Reserve finally embarked on a series of interest rate increases on Wednesday.
Oil prices remained above $100 a barrel after little progress in peace talks between Russia and Ukraine raised the specter of tougher sanctions and a prolonged disruption to crude supplies. Read more
There was also relief after Russia paid $117 million in interest on sovereign dollar bonds, easing doubts about its ability to meet foreign debt after harsh sanctions imposed by the West. Read more
In Asia, MSCI’s broadest index of Asia Pacific shares outside Japan (.MIAPJ0000PUS.) It fell 0.17% and the Hang Seng index in Hong Kong settled after a furious two-day rally. Japan’s Nikkei Index (.N225) It rose 0.6%.
The impact on inflation of the disruption to ports and the supply chain in China due to the sharp rise in COVID-19 infections risks being widely ignored by markets, said Michael Hewson, chief markets analyst at CMC Markets. Read more
“It’s going to be a headwind for the valuations and while we’re getting a fairly decent recovery at the moment, I’m having a hard time telling whether or not we can move above the highs we’ve seen this year,” Hewson said.
Productivity Shift Alert
The problems faced by policymakers whose economies are struggling with high inflation and declining growth were emphasized during a series of central bank meetings this week.
The Federal Reserve raised interest rates for the first time in more than three years on Wednesday and surprised traders with a tougher-than-expected outlook. The Bank of England rose as well but surprisingly there was a pessimistic outlook which sent gold prices higher. Read more
The Bank of Japan did not provide any surprises on Friday, leaving policy too easy, which kept heavy pressure on the yen. Read more
Meanwhile, the gap between US 2- to 10-year Treasury yields is nearing its narrowest since March 2020, when economies were pressured by the start of COVID lockdowns.
This leaves the yield curve not far from inverting, and is a reliable indicator of a possible recession in the next year or two.
The benchmark 10-year Treasury yield was last at 2.1548%.
Oil, which collapsed about 30% from last week’s peak, is rebounding once again as traders worry that hope for peace in Ukraine is misplaced. Brent crude futures fell 0.4 percent to $106 a barrel.
Prices of wheat and corn futures contracts, which are sensitive to supply disruptions in the Black Sea, also rose sharply.
The Japanese currency hit a six-year low this week and was last traded at 119 per dollar. “The next multi-session target could be the psychological level of 120.00,” said Terence Wu, a strategist at OCBC Bank in Singapore.
The euro hovered at $1.103, down 0.55% on the day
Spot gold was at $1,938, down 0.2%, and Bitcoin was clinging to over $40K, down 1.2%.
Register now to get free unlimited access to Reuters.com
Additional reporting by Sujata Rao, Editing by Angus McSwan, Kirsten Donovan
Our criteria: Thomson Reuters Trust Principles.
“Twitteraholic. Total bacon fan. Explorer. Typical social media practitioner. Beer maven. Web aficionado.”