War stocks, inflation and oil prices rebounded with yield warnings

  • Oil above $100 and gains extended
  • Stock indices have changed a little
  • Biden-Xi phone call scheduled for 1300 GMT
  • Yield reflection looms

LONDON (Reuters) – Global stocks held onto all-week gains on Friday, but a strong combination of higher interest rates, higher oil prices and the unending war in Ukraine kept the lid on the recovery as yields sent a warning signal. for the economy.

MSCI World Stock Index (.MIWD00000PUS.) It was flat at 695 points, up 5.4% for the week but well below its life high of 761.21 from Jan.

“Sentiments are still very cautious, they are looking for some reason to rise but are struggling to find something they have a strong conviction in,” said Sima Shah, chief strategist at Principal Global Investors.

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In Europe, Stokes (.stoxx) The index of 600 leading companies was little changed at 450 points, down 9% from its highest level since early January.

Shah said there was some relief that the US Federal Reserve on Wednesday finally embarked on a series of interest rate increases, and from here on it was a matter of watching how the economy develops and how high inflation goes before it peaks.

Oil prices remained above $100 a barrel after little progress in peace talks between Russia and Ukraine raised the specter of tougher sanctions and a prolonged disruption to crude supplies. Read more

“I think the conflict will continue in the background and as a result you will probably see high oil prices,” Shah said.

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Adding to the mix, US President Joe Biden is expected to issue a warning that Beijing will pay a price if it backs the Russian war effort when he speaks to Chinese President Xi Jinping on a call scheduled for 1300 GMT. Read more

However, the first Russian foreign bond default since the Bolshevik Revolution appears to have been averted for the time being. Some creditors have received payments, in dollars, for Russian bond coupons that matured this week, sources say. Read more

In Asia, MSCI’s broadest index of Asia Pacific shares outside Japan (.MIAPJ0000PUS.) It fell 0.15% and the Hang Seng Index in Hong Kong settled after a sharp two-day rally. Japan’s Nikkei Index (.N225) It rose 0.6%.

The impact on port inflation and disruption to supply chains in China due to the sharp rise in COVID infections, said Michael Hewson, chief markets analyst at CMC Markets, risked being widely ignored by markets. Read more

“It’s going to be a headwind for the valuations and while we’re having a fairly decent recovery at the moment, I’m having a hard time seeing whether or not we can move above the highs we’ve seen this year,” Hewson said.

S&P 500 futures are down 0.55%, with little major data ahead of the Wall Street open.

yield inversion

Productivity Shift Alert

The problems faced by policymakers whose economies are struggling with high inflation and declining growth were emphasized during a series of central bank meetings this week.

The Federal Reserve raised interest rates for the first time in more than three years on Wednesday, surprising traders with a tougher-than-expected outlook. The Bank of England also rose, but was surprised by its pessimistic forecast which sent gold prices higher. Read more

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The Bank of Japan did not provide any surprises on Friday, leaving policy too easy, which kept heavy pressure on the yen. Read more

Meanwhile, the gap between US 2- to 10-year Treasury yields is near its lowest since March 2020, when economies were pressured by the start of COVID lockdowns.

The narrow gap means that the yield curve is not far from inverting, which is a long-term indicator of possible recession in the next year or two.

The benchmark 10-year Treasury yield was last at 2.1655%.

Oil, which collapsed about 30% from last week’s peak, rebounded strongly as traders fear that hope for peace in Ukraine is misplaced. Brent crude futures rose 1.3 percent in their latest trading at $108, rising more than $10 a barrel in two sessions.

“It is very difficult to have any confidence that you will be able to get reliable commodities from Russia or Ukraine,” said Tobin Gorey, a commodity strategist at Commonwealth Bank of Australia in Sydney. “You’ll look elsewhere and that tends to drive prices higher.”

Wheat and corn futures contracts, sensitive to supply disruptions in the Black Sea, saw a sharp rebound.

The Japanese currency hit a six-year low this week and was last traded at 118.83 per dollar. “The next multi-session target could be the psychological level of 120.00,” said Terence Wu, a strategist at OCBC Bank in Singapore.

The euro hovered at $1.106, down 0.3% on the day

Spot gold hovered at $1,935, down 0.5%, and Bitcoin was clinging to over $40,000, down 0.7%.

Additional reporting by Hugh Jones Additional reporting by Tom Westbrook Editing by Shri Navaratnam, Simon Cameron Moore and Angus McSwan

Our criteria: Thomson Reuters Trust Principles.

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