World stocks hit five-week lows, U.S. stock index futures indicated a lower Wall Street open and bond yields soared to multi-year highs on Friday as investors brace for rate hikes in the United States, Britain and the euro zone.
The yuan struck a nine-month low, meanwhile, as lockdowns in Shanghai hit China’s growth prospects.
U.S. Federal Reserve Chairman Jerome Powell said on Thursday that a half-point interest rate increase would be “on the table” when the Fed meets in May, adding it would be appropriate to “be moving a little more quickly”.
European Central Bank officials said on Thursday that the central bank might start hiking euro zone rates as early as July, while Bank of England interest rate-setter Catherine Mann said that borrowing costs would probably have to rise further.
Euro zone money markets now fully price in a 25 basis point rate hike by July.
“The Fed, the ECB and the Bank of England were pushing hawkish commentaries on the markets and markets have reacted,” said Monica Defend, head of Amundi Institute, though she added:
“For the euro area, we are more sceptical on the fragility of the economic cycle, there is big potential for a recession to take place in Germany and Italy.”
U.S. purchasing managers’ data is due later on Friday.
Euro zone business growth unexpectedly accelerated this month, with the bloc’s dominant services sector seeing a sharp increase in activity as consumers shrugged off soaring prices, a survey showed on Friday.
Manufacturers, however, struggled as supply chain disruptions caused by the pandemic have been exacerbated by Russia’s invasion of Ukraine and renewed lockdowns in China.
Russia pressed its new offensive in eastern Ukraine while in the port city of Mariupol, teams of volunteers collected corpses from the ruins after Moscow declared victory there despite Ukrainian forces holding out.
MSCI’s world equities index was down 0.49% at its lowest since mid-March, and was heading for a 0.75% drop on the week.
S&P futures were down 0.25% after Wall Street indexes fell on Thursday.
European stocks dropped 1.3%, with France’s CAC 40 down 1.63% ahead of Sunday’s presidential run-off vote. Britain’s FTSE fell 0.8%.
Selling pressure persisted in bond markets, driving five-year U.S. Treasury yields to 3.049% and two-year yields to 2.776%, both at their highest since late 2018.
German two-year yields rose to 0.277%, their highest since 2013.
In currency markets, the yuan hit a nine-month low and was on course for its worst week since 2018.
JPMorgan cut its forecast for the currency on Friday, adding to the increasingly gloomy view on the yuan among top investment banks.
The dollar was steady at 128.35 yen after talk of joint Japan-U.S. FX intervention.
The euro was flat against the dollar to $1.0822, giving up Thursday’s bounce as nerves about Sunday’s French presidential election creep in.
“Whatever the outcome, economic momentum should remain against Europe’s favor at this time, preventing the euro from a material repricing upward in the next couple of months,” UBS analysts said in a note.
The U.S. dollar index rose 0.2% towards recent two-year highs.
Sterling fell to its lowest since late 2020 against the dollar, after British retail sales dropped in March by more than expected.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.1% to a five-week low. Japan’s Nikkei declined 1.63%.
Oil prices weakened, burdened by the prospect of interest rate hikes, weaker global growth and COVID-19 lockdowns in China hurting demand, even as the European Union weighed a ban on Russian oil.
Brent crude futures were down $1, or 1.35%, at $106.87 a barrel, while U.S. West Texas Intermediate (WTI) crude futures declined $1.50, or 1.42%, to $102.32.
The oil price has been increasingly volatile in recent months.
Since the creation of the Brent futures contract, there have only been 29 days where the spread between the intra-day high and low was $8 a barrel or more. Of those, 16 have occurred this year.
Spot gold fell 0.9% to $1,933.73 per ounce.
