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Rate worries, stalling economies cast pall over stock markets


By Huw Jones

LONDON (Reuters) – Wall Street was poised to broaden weaker global stocks on Friday on investor concerns over no end in sight to interest rate hikes as data showed European business activity stalling.

U.S. stock index futures were weaker across the board as oil skidded on worries that higher borrowing costs could trigger recession and crimp the demand for fuel.

Euro zone government bond yields fell on news that German business activity, as measured by purchasing managers indexes (PMI) slowed notably in June, while French business activity contracted this month for the first time in five months.

The euro fell on the news, as the dollar drew support from a bout a risk aversion in markets.

“Taken at face level, the eurozone composite PMI is consistent with stagnant GDP growth at the end of the second quarter and only modest expansion in 2Q23,” UniCredit bank said in a note to clients.

The current slump remains mild enough for the European Central Bank not to change course on rate hikes, added ING bank. U.S. PMI data are due shortly after the opening bell on Wall Street.

There was also worrying economic news in Asia with Japan’s core consumer inflation exceeding forecasts in May.

The MSCI All Country stock index was down 0.4% at 673.48 points, and off about 1.6% for the week, though still up 11.5% for the year. Markets feel that central banks are prepared to risk a recession to try get core prices lower, triggering a revaluation of stock markets, said Mike Hewson, chief markets strategist at CMC Markets.

In Europe, the STOXX 600 index was down 0.13% and set to end the week lower.

With a lack of stimulus for China’s sputtering recovery, recent unexpected hikes in Australia and Canada, and the Federal Reserve’s forecast of two more rate hikes, the growth fears are global.

“Central bankers are saying they have a very strong willingness to tame inflation and markets are believing this,” said Kevin Thozet, a member of the investment committee at Carmignac.

Investors, however, should keep a cool head because economic growth was not falling off a cliff, disinflation was on its way, long-term bond yields were behaving well, and central banks are near the end of their rate tightening cycle, Thozet said.


Oil prices fell for a second straight session and were headed for a weekly decline of more than 3% as a more hawkish tone from central banks cast a cloud over demand. A rising dollar also makes the commodity more expensive for some customers.

Brent oil futures were down 1% at $73.34 a barrel, while U.S. West Texas Intermediate (WTI) crude futures were down 1.2%, at $68.64.

The U.S. dollar index rose 0.47% to 102.86 and was ontrack for a weekly gain, reversing three straight weeks oflosses as it drew support from growing risk aversion in markets.

The pound, still digesting news of Thursday’s bigger-than-expected 50 basis points rate hike from the Bank of England, eased 0.1% to $1.2735 and was on track for a weekly loss of nearly 1%, snapping three straight weeks of gains. Elsewhere, the euro fell 0.6% to $1.0885.

In Asian markets, the MSCI’s broadest index of Asia-Pacific shares outside Japan lost 1.2% and is down more than 4% for the week, its worst in nine months.

Japan’s Nikkei fell 1.45% and was set to snap a 10-week winning streak with a 2.7% weekly drop.

In bonds, U.S. Treasuries were steady after being sold when Fed Chair Jerome Powell reiterated on Thursday that further rate hikes are likely. Two-year Treasury yields were slightly weaker at 4.74% and 10-year yields at 3.73%. [US/]

Gold steadied after trading near a three-month low and was set for its biggest weekly drop since February as the greenback was buoyed by hints of more rate hikes. The yellow metal was trading at $1,919 an ounce, up 0.3% on the day. [GOL/]

(Additional reporting by Tom Westbrook, Editing by Sam Holmes, Philippa Fletcher and David Evans)

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