By Elizabeth Howcroft and Koh Gui Qing
LONDON/NEW YORK (Reuters) – Global stock markets stumbled again on Friday and U.S. Treasury yields climbed as cautious investors considered imminent U.S. interest rate hikes and the uncertainty of their impact on the economy.
Even a spate of solid earnings reports from Wall Street banks — JPMorgan Chase & Co and Wells Fargo & Co both posted fourth-quarter earnings on Friday that beat expectations — failed to lift the U.S. equity market.
By late morning, MSCI’s gauge of stocks across the globe had shed 0.63%. The pan-European STOXX 600 index lost 0.88%, with technology stocks on track for their second consecutive weekly decline. [.EU]
The Dow Jones Industrial Average fell 0.67%, the S&P 500 lost 0.25%, and the Nasdaq Composite was little changed. [.N]
“It’s clearly the impact of monetary policy tightening that’s being felt in markets here,” said Guillaume Paillat, multi-asset portfolio manager at Aviva Investors.
“Why would I buy expensive low-profit growth stocks when the central bank is starting to tighten monetary policy?”
Paillat, who is expecting at least four Federal Reserve rate hikes this year, said it was “pretty much a done deal” that the tightening cycle would start in March.
“What matters over the coming days is going to be more about earnings,” he added. “There’s still a bit of room for earnings to surprise to the upside.”
In line with expectations of rising rates, benchmark 10-year Treasury yields edged up to 1.7486%, and two-year Treasury yields rose to 0.9404%. [US/]
European government bond yields were up by around 1 to 2 basis points, having generally moved lower this week as investors sought safer assets.
The European bond market has been calm in the face of a possible government shake-up in Italy and ahead of French elections in April.
Meanwhile, the five-year Japanese government bond yield jumped to its highest since January 2016 and the yen rose after a Reuters report that Bank of Japan policymakers are debating how soon they can start an eventual interest rate hike.
Such a move could come even before inflation hits the bank’s 2% target, sources said.
The dollar, which has been slugged by a three-day selling spree as investors bet that expectations of rate rises are already priced into the currency, finally steadied on Friday.
The dollar index, which measures the greenback against a basket of six currencies, bounced 0.15% to 94.991, retreating from a two-month low hit this week. [USD/]
A bounce in the dollar dragged on the euro, which lost 0.17% to 1.1433.
Sterling also slipped 0.14% to 1.36875, taking a breather after this week’s rally that pushed it to a 2-1/2-month high.
GDP data on Friday showed that Britain’s economy grew faster than expected in November and its output finally surpassed its level before the country went into its first COVID-19 lockdown.
Asian shares had fallen overnight after Federal Reserve Governor Lael Brainard on Thursday became the latest and most senior U.S. central banker to indicate that the U.S. Federal Reserve will hike rates in March.
Other Fed officials have also shown their willingness to raise rates, after data this week showed U.S. consumer prices surged 7% year-on-year.
Bucking the weakness in equity markets, oil futures rose again on Friday to be on course for a fourth weekly gain, boosted by supply constraints. [O/R]
Brent crude futures rose 0.9%, to near a two-and-a-half month high of $85.24 a barrel. U.S. West Texas Intermediate crude gained 0.96% to $82.89.
Spot gold was steady at $1,821.66 per ounce, and bitcoin added 0.99% to $42,991.60.
(Reporting by Koh Gui Qing and Elizabeth Howcroft; editing by Jonathan Oatis)