© Reuters. FILE PHOTO: Passersby walk past an electric stock quotation board outside a brokerage in Tokyo, Japan, December 30, 2022. REUTERS/Issei Kato
By Herbert Lash and Elizabeth Howcroft
NEW YORK/LONDON (Reuters) -The dollar firmed and equity markets fell on Friday as the impact of rising interest rates on the economy unsettled investors amid a growing chorus of central bank officials insisting monetary policy needs to remain ti7ght for some time.
U.S. mega-cap growth companies came under pressure, with Lyft Inc (NASDAQ:) shares tumbling 35% after its first-quarter profit and revenue forecasts missed expectations. In Europe, German footwear maker Adidas (OTC:)’ dour forecast also spooked investors.
MSCI’s gauge of stocks across the globe shed 0.60%, while the rose 0.417%.
The yield on benchmark rose to the highest in more than a month and the 10-year German bund was poised to post its weekly biggest rise of 2023 as European Central Bank policymakers warned about inflation.
Broad disinflation has yet to start even if overall price growth has been in quick decline, ECB board member Isabel Schnabel said in a Twitter Q&A, the latest euro zone policymaker to say rates must rise further to combat inflation.
Federal Reserve officials said the same this week, as did policymakers in Australia, Sweden and Mexico.
But Michael James, managing director of equity trading at Wedbush Securities in Los Angeles, said the trend for stocks is still higher.
“Those believing that the Fed is sounding more hawkish than they are going to end up being remain in control the market,” he said.
“Those with a longer-term view remain more bullish than you would expect from the Fed’s hawkish. The market is betting against the Fed being as hawkish as they continue to sound.”
The rose 0.19%, the lost 0.14% and the dropped 0.9%. The pan-European index lost 1.04%.
Futures now price the Fed’s target rate to peak at 5.153% in July and stay above 5% from May to November, with only a slight decline to 4.862% in December. Before this week rates were seen much lower and suggested a rate cut late this year.
U.S. consumer sentiment improved further in February, but households expected higher inflation to persist, the University of Michigan’s preliminary reading for the month showed. One-year inflation expectations increased to 4.2% from 3.9% in January.
Maximilian Kunkel, chief investment officer for Germany and global family and institutional wealth, said that recent earnings reports, particularly for U.S. technology companies, have hit market sentiment.
“The focus is shifting away from the positive impact of disinflation towards concerns around growth,” Kunkel said.
“People (are) realising that the earning season hasn’t actually been all that great,” he said. “Investors are starting to expect lower profit margins as inflation comes down.”
The yen broadly strengthened after reports that the Japanese government was set to appoint academic Kazuo Ueda as the central bank’s next governor.
The Japanese yen strengthened 0.04% at 131.52 per dollar.
“The news surprised the market as he would bring a bit more of a hawkish tilt to monetary policy than the top contender, Masayoshi Amamiya,” ING said in a note to clients, adding that the market reaction could prove “temporary”.
In Europe, German government bond yields edged higher, with the 10-year bund at 2.363%.
The euro fell 0.62% to $1.0669.
Oil prices rose more than 2%, on track for weekly gains of over 8%, as Russia announced plans to reduce oil production next month after the West imposed price caps on the country’s oil and oil products.
recently rose 2.27% to $79.83 per barrel and was at $86.52, up 2.39% on the day.
Gold inched lower while markets awaited next week’s U.S. inflation data that could influence the Fed’s rate policy.
dropped 0.2% to $1,857.81 an ounce.
