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European stocks dropped, Asian shares closed near the year's
lows and Wall Street looked set to open weaker after a bruising
session the day before that was led by sharp falls in tech
stocks.
The pan-European EUROSTOXX was down 0.65% by 1130 GMT. Germany's
DAX dropped 0.81%, although Britain's FTSE 100 bucked the trend
with a 0.26% rise.
Wall Street futures were in the red, with Nasdaq futures down
0.66%.
U.S. stocks have now reversed all of their gains from Wednesday
when markets welcomed the Federal Reserve's commitment to tackle
rising inflation with faster bond tapering and interest rate
rises next year.
MSCI's broadest index of Asia-Pacific shares outside Japan shed
0.76% on Friday, only just holding above the year low set last
week, while Chinese blue chips lost 1.59% and suffered their
worst week in three months.
Stocks are going into the year-end period - when many traders
are reluctant to put on new positions - near record highs but
with plenty to worry about.
The hawkish tilt from central banks this week including the
Federal Reserve and Bank of England, and to a lesser degree the
European Central Bank, was initially greeted by a wave of buying
from investors confident policymakers will curb higher
inflation.
But the mood has since turned gloomier as traders fret markets
pumped up on cheap money are vulnerable to even the smallest of
pullbacks in stimulus.
"Volatility is rising again, lowering the predictability of what
may happen next," said Ipek Ozkardeskaya, Senior Analyst at
Swissquote.
After enjoying its best week since February last week, the MSCI
World Index is down 1% from Monday's open.
(Graphic on,MSCI World Index:
https://fingfx.thomsonreuters.com/
gfx/mkt/
egpbkogeavq/world%20stocks.PNG)
Even the Bank of Japan on Friday dialled back some emergency
pandemic-funding but maintained its ultra-loose policy and
extended financial relief for small firms, cementing
expectations it will remain among the most dovish central banks
for the foreseeable future.
Euro zone inflation surged to its highest on record in November
at 4.9% year-on-year, official data confirmed on Friday, while
several conservative ECB policymakers said the central bank may
be underestimating inflation risks. [
OMICRON JITTERS
Adding to the caution are worries that rising Omicron infection
rates mean a rocky few months for the global economy, although
most economists think the damage will be much less severe than
in previous waves of COVID-19 cases.
Investors held on to safe-haven government debt. The yield on
benchmark 10-year U.S. Treasury notes fell to as low as at
1.409%, while the two-year yield was steady at 0.63%, having
rolled off its recent highs. German yields also dropped. [US/]
"Ordinarily, in the wake of a more hawkish (Federal Open Market
Committee) outcome, yields would be expected to rise in
anticipation of the Fed tightening cycle," said analysts at
Westpac.
"However, there are competing dynamics at present, with ongoing
inflation fears sparking the Fed's tougher rhetoric being offset
by fears that economic growth will be derailed by Omicron in the
near term," they added.
The Fed was not the only central bank to turn hawkish with the
Bank of England surprising markets on Thursday by becoming the
first G7 central bank to raise interest rates since the
pandemic.[FRX/]
Sterling slipped 0.2% but at $1.329 held to some of Thursday's
jump following the BoE hike.
The dollar index was trading at 96, unchanged on the day and off
nearly 1% since Wednesday's high immediately after the Fed's
announcement.
Japan's yen was up slightly to 113.48 yen per dollar.
Oil prices fell with Brent crude down 1.65% to $73.78 a barrel
and U.S. crude losing 1.73% to $71.16 a barrel.[O/R]
Spot gold rallied, moving past the symbolic $1,800 level to
trade 0.6% higher at $1,809 an ounce, its highest since Nov. 26.
[GOL/]
(Additional reporting by Alun John in Hong Kong; editing by
David Evans, Kirsten Donovan)
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