By Herbert Lash
NEW YORK/LONDON (Reuters) – The dollar strengthened and global stock markets fell on Friday as rising interest rates unsettled investors, while a growing chorus of central bank officials insisted monetary policy must remain tight for some time to contain inflation lick.
US mega-cap growth companies came under pressure and shares in ride-sharing company Lyft Inc plunged 36% after a bearish forecast. In Europe, a gloomy outlook from Adidas added to the gloom that higher interest rates were conveying to investors.
A sell-off in sovereign debt dominated the day. Benchmark 10-year Treasury yields hit a more than monthly high and German 10-year Bunds posted their biggest weekly gain this year as European Central Bank policymakers warned of inflation. Yields move inversely with their price.
MSCI’s US central index of stock market performance in 47 countries fell 0.34%, while the dollar index rose 0.37%. Wall Street stocks ended mixed as many investors hoped for a rate cut later this year and rising oil prices buoyed energy stocks.
“For all the excitement or hopeful optimism that the (Federal Reserve) will cut rates by the end of the year, I’m skeptical that that will happen,” said Michael Arone, chief investment strategist for U.S. SPDR operations State Street Global Advisors in Boston.
“The economy, earnings and possibly the job market are not going to look as good as they are this year and maybe next year. That doesn’t necessarily have to result in market losses,” he said.
Broad disinflation has yet to begin, even as overall price growth has fallen rapidly, said ECB Executive Board member Isabel Schnabel in a Twitter Q&A report, the latest euro-zone politician to say interest rates need to keep rising to fight inflation.
Fed officials said the same thing all week, as did policymakers in Australia, Sweden and Mexico as they too hiked rates.
Michael James, managing director of equities trading at Wedbush Securities in Los Angeles, said the trend for equities is even higher.
“Those with a longer-term perspective remain more optimistic than one would expect from the Fed’s dovish stance. The market is betting that the Fed is as hawkish as they continue to sound,” he said.
The Dow Jones Industrial Average rose 0.5%, the S&P 500 gained 0.22% and the Nasdaq Composite fell 0.61% as it recorded its first weekly decline of the year.
The pan-European STOXX 600 index fell 0.96% as footwear maker Adidas warned of a potential loss this year for the first time in three decades. The shares lost 10.9%.
Futures are now pricing in the Fed’s target rate, peaking at 5.153% in July and staying above 5% from May to November, with only a slight decline to 4.862% in December. Ahead of this week rates were seen much lower, suggesting a Fed rate cut later this year.
Monthly US consumer prices rose in December, rather than falling as previously thought, and data for the previous two months were also revised upwards, according to the Labor Department’s annual revisions to the consumer price index (CPI).
The yen rose broadly after reports that the Japanese government would appoint academic Kazuo Ueda as the next central bank governor.
The Japanese yen rose 0.13% to 131.42 per dollar.
“The news surprised the market as it would give monetary policy a slightly more aggressive bias than lead candidate Masayoshi Amamiya,” ING said in a note to clients, adding that the market reaction could prove “temporary”.
In Europe, German government bond yields rose modestly, with the 10-year bund hitting 2.377% before falling at the end of the session. The euro fell 0.57% to $1.0675.
Oil prices rose more than 2% and are on course for weekly gains of more than 8% as Russia announced plans to cut crude production next month after the West imposed price caps on the country’s fuel production.
US crude futures rose $1.66 to $79.72 a barrel, while Brent rose $1.89 to close at $86.39.
Gold edged higher as markets awaited next week’s US inflation data, which could influence Fed interest rate policy.
US gold futures for February delivery were down 0.2% at $1,874.50 an ounce.
Bitcoin fell 0.68% to $21,653.00.
(Reporting by Herbert Lash, additional reporting by Elizabeth Howcroft, Kevin Buckland; editing by Marguerita Choy and Sharon Singleton)
