World stocks up, dollar dips as Fed officials calm inflation fears

Global stocks rose and the dollar dipped on Friday after US Federal Reserve officials said there would be no imminent move to tighten monetary policy in the world’s biggest economy.

The bounce, extending a late recovery in the prior session, interrupted a three-day rout for stocks globally, amid market jitters over accelerating US inflation.

The MSCI World Index, a broad gauge of equity markets globally, was up 0.4%, clawing back some more of the week’s losses, which stand at just under 3%.

The STOXX Europe 600 Index was up 0.6%, tracking overnight gains in Asia, where MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.8%, although European shares remain set for their worst week since February.

US stock futures pointed to a higher open on Wall Street, with S&P 500 futures up 0.6% and its Nasdaq peer up 1%.

After a higher than expected inflation print had spooked markets earlier in the week, Fed official Christopher Waller signalled overnight that rates would not rise until policymakers either see inflation above target for a long time or a situation of excessively high inflation.

“From 2004 to 2008 the Fed raised rates from 1 to 5.25 percent. However, the massive public and private debt levels limit the Fed in how much interest rates can increase this time without too much damage to the overall economy,” said Louise Dudley, Global Equities Portfolio Manager at the international business of Federated Hermes.

With so-called “growth” stocks, those expected to post higher-than-average returns, trading on higher valuations than their more staid peers, Dudley said now was the time to change tack.

“Stocks with more attractive valuations and slower growth will do well in a higher interest rate environment. Investors will do well focusing on valuation this year even if interest rates do not surprise on the upside.”

Weekly inflows into equities hit $25.7 billion, Bank of America Merrill Lynch analysts said in a note, with its private clients favouring financials, Japanese assets and those in the materials sector.


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Looking ahead, traders will wait for the release of a fresh batch of US data including April retail sales, industrial production and capacity utilisation, while the Dallas Federal Reserve President is also set to speak.

In Europe, meanwhile, the European Central Bank is set to publish the accounts of its April meeting.

Benchmark 10-year Treasury yields eased to 1.6369%. Euro zone government bond yields were steady, with German 10-year debt at -0.130%.

After holding steady in Asia overnight, the US currency extended losses against a basket of its major peers, with the dollar index down 0.2% at 90.53, taking a breather after recent strong gains.

“Treasury yields are higher this week, but only by 5bp, which is less of a rise than in Europe, and a pretty modest reaction to the CPI data,” Societe Generale analyst Kit Juckes said in a note.


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“Either the US inflation uptick is temporary or the Fed is dangerously complacent. Either way, we’re going to see tolerance of higher inflation tested further in the months ahead.”

Gold extended gains to trade up 0.5% at $1,834 an ounce, helped by the pullback in the dollar.

Oil prices bounced off their lows, reversing some of the prior session’s losses, although gains were capped by a high level of coronavirus cases in key consumer India and the return to action of a top U.S. fuel pipeline network after being shut due to a cyber attack.

Brent crude was up 0.9% at $67.66 a barrel, while U.S. West Texas Intermediate crude was up 0.9% at $64.38 a barrel.


Elon Musk. File

In cryptocurrencies, bitcoin recovered to trade just above $50,000 on Friday, after plunging to a 2-1/2-month low of $45,700 in the previous session when a media report of a regulatory investigation into crypto exchange Binance added to pressure from Tesla Inc chief Elon Musk reversing his stance on accepting the digital currency.

Copper prices were on course for their first weekly decline since the start of April on Friday as rising inflation fears and a dip in demand from China dragged prices down.

Benchmark copper on the London Metal Exchange (LME) was 1% lower at $10,239.50 a tonne in official trading, having scaled a record high of $10,747.50 on Monday.

It was down about 1.7% over the week.

Many analysts expect the metal used in construction and power to rise further as the global economy rebounds and moves from fossil fuels to copper-intensive electrification.

“Supply is relatively tight while demand keeps expanding,” said WisdomTree analyst Nitesh Shah. “I think it will start going up again.”

Chinese demand for copper is likely to remain strong as local governments plough money into infrastructure, he added.

Fears that central banks will act to contain rising inflation hit stock markets and commodities this week while boosting the dollar and bond yields.

By Friday, however, stocks were moving higher and the dollar and yields lower after U.S. Federal Reserve officials said there would be no imminent tightening of monetary policy.

New bank loans in China fell more than expected in April and money supply growth slowed to a 21-month low, pointing to weaker growth in the world’s biggest metals consumer.