MSCI’s global equity gauge fell on Friday as investors waited for clues about the future path for interest rates from next week’s U.S. Federal Reserve meeting. Benchmark 10-year yields rose to a three-week high, and were on track for their fifth-straight daily gain, as investors bet that Fed Chair Jerome Powell will signal a pause in policy easing after a widely expected 25-basis-point rate cut next Wednesday.
The U.S. central bank is grappling with inflation staying stubbornly above its 2% annual target. Data released on Thursday showed higher-than-expected U.S. producer prices in November, while Friday’s data showed U.S. import prices barely rose in November.
Matt Rowe, head of portfolio management and cross-asset strategies at Nomura Capital Management, said that the market is assuming a rate cut next week and then a pause, which he believes is the right assumption given the tension between inflationary data and labor-market data.
However, Tom Fitzpatrick, head of global market insights at R.J. O’Brien in New York, warned that the Fed may not cut rates further if inflation remains sticky and the economy is expected to receive further fiscal stimulus, deregulation, and tariffs.
Despite a rally in chipmaker Broadcom providing a big boost for Wall Street, only the Nasdaq managed a small gain. The S&P 500 fell 0.64%, the Dow fell 1.82%, and MSCI’s gauge of stocks across the globe fell 0.26%.
In currencies, the dollar eyed its biggest weekly gain in a month on the prospect of slower U.S. rate cuts. The euro rose 0.32% to $1.0501, clawing back some recent losses in the wake of the European Central Bank’s rate cut on Thursday. Against the Japanese yen, the dollar strengthened 0.66% to 153.62.
Oil prices settled at a three-week high on expectations of more sanctions on Russia and Iran, and lower U.S. and European interest rates boosting fuel demand. Gold fell 1.2% to $2,649.04 an ounce.