U.S. stock futures dipped and world stocks eyed recent six-week lows on Friday while the dollar hit a fresh 24-year high against the yen ahead of key U.S. jobs data, as investors brace for aggressive rate hikes from the Federal Reserve.
Fresh lockdowns in China are also fuelling concerns about global growth, and high energy costs as a result of the war in Ukraine are weighing on Europe.
“The market is laser-focused on how aggressive the Fed is going to be with its hiking cycle,” said Giles Coghlan, chief currency analyst at HYCM, adding that expectations for higher rates have solidified since a speech last week by Fed chair Jerome Powell at the Jackson Hole central banking conference.
The markets are worried about “China slowing, euro zone recession and a hawkish Fed,” he said.
The MSCI world equity index was steady on the day but headed for a 3% drop on the week, which would mark its third straight week of losses.
U.S. S&P futures weakened 0.16% after the S&P 500 index rose 0.3% on Thursday.
U.S. August nonfarm payroll figures due at 1230 GMT on Friday are expected to show 300,000 jobs were added, while unemployment hovered at 3.5%.
Strong data is seen strengthening the Fed’s ability to raise rates to curb inflation without crimping growth.
Futures markets have priced in as much as a 75% chance the Fed will hike by 75 basis points at its September policy meeting, compared with a 69% probability a day ago. .
European stocks recovered slightly from Thursday’s six-week lows, gaining 0.4%, while Britain’s FTSE rose 0.5%.
Equity funds recorded the fourth largest weekly outflow of 2022, while bond funds saw investors pull out money for a second straight week, BofA said in a note.
In Europe, fears of a recession are increasing, with a survey showing on Thursday that manufacturing activity across the euro zone declined again last month, as consumers feeling the pinch from a deepening cost of living crisis cut spending.
The dollar, a beneficiary of rising interest rates, hit a fresh 24-year high against the yen at 140.43, triggering a warning by Japan’s Finance Minister Shunichi Suzuki of “appropriate” action to curb the volatility.
The dollar index, which measures its performance against a basket of six currencies, dipped 0.27% after hitting a 20-year high in the previous session.
The euro rose 0.5% to $0.9995.
In bond markets, the yield on benchmark two-year notes fell 3 basis points to 3.4902%, moving away from recent 14-year highs.
The yield on 10-year bonds fell 1 bp to 3.2556%.
German 10-year bond yields rose 2.5 bps to 1.589%, near recent two-month highs, as expectations grow of a 75 bps hike next week from the European Central Bank.
“Almost half the euro zone is suffering inflation of over 10%, the pressure on the ECB is mounting,” said Martin Moryson, European economist at DWS.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.6%, heading for its worst weekly performance since mid-June with a tumble of 3.6%.
Japan’s Nikkei was steady and Chinese blue chips dropped 0.5%.
The southwestern Chinese metropolis of Chengdu on Thursday announced a lockdown of its 21.2 million residents, while the technology hub of Shenzhen also rolled out new social distancing rules as more Chinese cities tried to battle recurring COVID-19 outbreaks.
“We maintain the view that China will keep its zero-COVID policy until March 2023, when the (leadership) reshuffle is fully completed, but we now expect a slower pace of easing of the zero-COVID policy after March 2023,” analysts at Nomura said.
Oil prices recovered much of their recent losses on expectations that OPEC+ will discuss output cuts at a meeting on Sept. 5, though concern over China’s COVID-19 curbs and weak global growth continued to limit gains.
Brent crude futures rose 2.2% to $94.42 a barrel while U.S. West Texas Intermediate (WTI) crude futures were up by 2.34% to $88.64 a barrel.
Spot gold rose 0.5% to $1703 per ounce.