Global stocks pull lower on US rate concerns

AFP | London

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A push higher by global stocks ran out of steam Friday as US bond yields rose in a signal that investors see the US Federal Reserve pausing after an expected interest rate cut next week.

Wall Street had opened higher on AI optimism and European markets were trading higher into the afternoon.

But "earlier gains have drifted away as US Treasury yields strengthen," said Chris Beauchamp, Chief Market Analyst at online trading platform IG.

"Yields rose to their highest levels in over two weeks as markets brace for the Federal Reserve's final meeting of the year, reflecting concerns over sticky inflation," he added.

The latest US consumer price index data released this week showed prices ticked higher in November and the wholesale data also showed stubborn inflationary pressures.

There is also growing concern over the inflationary pressures from president-elect Donald Trump's pledges to cut taxes and impose tariffs, as inflation still stands above the bank's target.

"While the markets still anticipate a rate cut from the Federal Reserve next week, the likelihood of a move in January has dropped," said Patrick Munnelly, partner at broker Tickmill Group.

The CME FedWatch tool shows the market sees a nearly 80% chance of Fed holding rates steady in January.

Investors will be eagerly awaiting how the Fed sees the inflation outlook for hints about the pace of future cuts.

In Europe, the Paris CAC 40 index ended the day down 0.2% after French President Emmanuel Macron named his centrist ally Francois Bayrou as prime minister, ending days of deadlock over finding a replacement for Michel Barnier.

Frankfurt also dipped, with Germany's central bank sharply downgrading its growth forecasts on Friday for 2025 and 2026. It predicted a prolonged period of weakness for Europe's biggest economy.

London stocks were also lower after official data showed that the UK economy unexpectedly shrank for the second consecutive month in October.

The euro recovered after flirting with two-year lows against the dollar following a warning Thursday by ECB president Christine Lagarde that the eurozone economy was "losing momentum", cautioning that "the risk of greater friction in global trade could weigh on euro area growth".

In Asia, Hong Kong and Shanghai both tumbled as investors were unimpressed with Beijing's pledge to introduce measures aimed at "lifting consumption vigorously" as part of a drive to reignite growth in the world's number two economy.

President Xi Jinping and other key leaders said at the annual Central Economic Work Conference they would implement a "moderately loose" monetary policy, increase social financing and reducing interest rates "at the right time".

The gathering came after Beijing in September began unveiling a raft of policies to reverse a growth slump that has gripped the economy for almost two years. "We're still not convinced that policy support will prevent the economy from slowing further next year", said Julian Evans-Pritchard, head of China economics at research group Capital Economics.

Seoul extended to four days a rebound from the selling sparked by South Korean President Yoon Suk Yeol's brief martial law declaration, as the focus there turns to a second impeachment vote planned for Saturday. The advance helped the Kospi briefly rise back above the level it sat at before Yoon's December 3 shock.