By Nell Mackenzie and Ankur Banerjee
LONDON/SINGAPORE (Reuters) -World stocks slipped, with European shares retreating from three-week highs on Friday, while the dollar was steady as hawkish comments from U.S. Federal Reserve Chair Jerome Powell dashed expectations of a peak in interest rates.
The pan-European STOXX 600 fell 0.8% by 0930 GMT. Germany’s DAX dropped 0.7% while France’s CAC 40 and Britain’s FTSE both tumbled 0.9% lower.
The sombre mood was global, as MSCI’s broadest index of world shares fell 0.4% to a one-week low of 659.86, on track for a fourth session of losses and a weekly decline of about 0.5%.
Fed officials including Powell on Thursday expressed uncertainty in their battle against inflation and added that they would tighten policy further if need be.
Powell’s comments along with a weak auction of $24 billion in 30-year Treasuries pushed yields higher, casting a shadow on equities and providing support to the dollar. [US/]
“There is no point in corralling the market into expecting cuts until shortly before they look necessary,” said Rob Carnell, Asia-Pacific head of research at ING.
Investors have been looking for signs of U.S. interest rates peaking after the Fed held rates steady last week, a move that bolstered speculation that the rate hiking cycle was over, leading to a short-lived rally in risky assets.
Some investors said Powell’s hawkish leaning on Thursday may have been the result of a recent softening of financial conditions that has come as yields have tumbled in recent weeks.
“The recent decline in U.S. yields has sparked questions about the necessity for the Fed to increase rates further, especially if market yields continue to adjust downward,” Bruno Schneller, managing director at INVICO Asset Management.
The three major U.S. stock indices closed lower on Thursday, snapping the longest winning streaks for the Nasdaq and S&P 500 in two years as market optimism over looser monetary policy faded. [.N]
U.S. rate futures have priced in about 60% chance of a rate cut at the Fed’s June 2024 meeting, according to the CME’s FedWatch tool, compared to odds of about 70% before Powell’s speech.
Traders would be keeping a close watch on interest rate volatility, said INVICO’s Schneller who noted that recently the markets had seen significant fluctuations.
“A primary cause for this volatility is the debate over whether the current Fed funds rate is overly high or insufficient,” he said.
Chinese stocks eased 0.5%, as worries over the world’s second-biggest economy resurfaced after data on Thursday showed consumer prices dipped back into contraction.
Tapas Strickland, head of market economics at NAB, said the data keeps the pressure on Beijing to continue with its incremental easing in monetary and fiscal policy.
The yield on 10-year Treasury notes stood at 4.6300%, having gained 12 basis points on Thursday, their largest one-day gain in three weeks.
In currency markets, the dollar index tipped slightly down 0.07% from its overnight gains and was last at 105.84. The dollar stood near a one-year high at 151.40 yen and touched one-week highs against the Australian and New Zealand dollars. [FRX/]
Brent rose 74 cents to $80.69 a barrel while U.S. crude rose 65 cents to $76.39 a barrel both up around 0.9% on the day. The oil market has been reeling this week on demand concerns, with a fading war-risk premium triggering a sell-off. [O/R]
Spot gold dipped about 0.2% at $1,954.20 per ounce and on track for their worst week in more than a month, down 1.8%, as elevated yield and stronger dollar weighed.
In cryptocurrencies, bitcoin and ether held near multi-month highs, with renewed speculation over the imminent approval of an exchange-traded bitcoin fund breathing new life into the digital assets.
(Reporting by Ankur Banerjee in Singapore; Editing by Tom Hogue, Christian Schmollinger and Angus MacSwan)
