By Nell Mackenzie and Ankur Banerjee
LONDON/SINGAPORE (Reuters) – U.S. stocks looked set for a mixed to lower start 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.
At 1210 GMT, S&P 500 futures were flat while Nasdaq futures dipped 0.2%.
Globally, mood music was sombre, with MSCI’s broadest index of world shares hovering near a one-week low of 659.86, down 0.4% and on track for a fourth session of losses and a weekly decline of about 0.5%.
European stocks spent the session in the red with the STOXX 600 down 1% by 1215 GMT. Germany’s DAX dropped 0.8% while France’s CAC 40 and Britain’s FTSE both tumbled over 1%.
Fed officials including Powell on Thursday expressed uncertainty about 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/]
“Weak demand for long US paper makes investors wonder if spiralling deficits could erode the effectiveness of monetary policy,” Kenneth Broux at Societe Generale said in a note, adding this would be a main investor theme for 2024 as the United States prepares for presidential elections.
Investors had looked for signs of a U.S. interest rate peak after the Fed held rates steady last week, a move that bolstered speculation that the tightening cycle was over, spurring 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 after 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 bets on 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.
Asian stocks closed the day down as worries over the world’s second-biggest economy resurfaced after data on Thursday showed Chinese consumer prices dipped again.
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 Treasuries stood at 4.6142%, having gained 12 basis points on Thursday, their largest one-day gain in three weeks.
In currency markets, the dollar index tipped down 0.07% from its overnight gains and was last at 105.85. The dollar stood near a one-year high at 151.43 yen and touched one-week highs against the Australian and New Zealand dollars. [FRX/]
Brent rose 95 cents to $80.96 a barrel while U.S. crude rose 90 cents to $76.64 a barrel, both up close to 1% 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 0.5% to $1,947.60 per ounce and was on track for its 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 Nell Mackenzie in London; Editing by Dhara Ranasignhe and Tomasz Janowski)
