The US dollar and bond yields rose after St. Louis Federal Reserve President James Bullard said interest rates would have to rise to between 5% and 5.25%, from the current level of just below 4.00%, to be “restrictive enough” to curb inflation.
This dealt a blow to investors who were betting on rates to top out at 5% and watched as Federal Reserve Fund futures priced in the possibility of rates to top out at 5% to 5.25%. , instead of 4.75% to 5.0%.
The MSCI Index of world equities was up 0.2% while the US S&P was flat after the S&P 500 Index fell 0.3% on Thursday.
European shares gained 0.5% and the banking sector rose almost 1%, as the European Central Bank prepares to initiate the largest cash withdrawal from the Eurozone banking system in its history.
Britain’s FTSE was up 0.3%, a day after Chancellor of the Exchequer Jeremy Hunt announced tax hikes and spending cuts in an effort to calm markets. that the government is serious about fighting inflation.
Two-year US Treasury yields rose again to 4.48%recovering a little from the sharp drop of 33 basis points, to a low of 4.29%, driven by last week’s inflation data.
This left them 69 basis points above 10-year yields, the biggest inversion of the curve since 1981 and an indicator of impending recession.
The dollar was stable at 106.65 against a basket of currencies, after hitting a three-month low of 105.30 earlier in the week. The US currency was stable at 140.23 yen, but remained above its recent low of 137.67 yen. Sterling was up 0.3% at $1.1904.
The euro was trading at $1.0357, after falling from a four-month high of $1.0481 hit on Tuesday as some policymakers urged caution in tightening.
The MSCI Asia-Pacific excluding Japan index of stocks closed flat. Chinese stocks fell 0.45% on news that Beijing asked banks to check liquidity in the bond market, after rising yields led to losses for some investors.
Japan’s Nikkei index fell 0.1% as data showed inflation at a 40-year high, and a weak yen raised import costs.
Brent crude was down 0.2% at $89.51 a barrel, while US crude was steady at $81.67 a barrel.
Gold was up 0.1% at $1,763 an ounce, after hitting a three-month high of $1,786 earlier in the week.