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Global shares were mixed on Friday as the last full trading week of the year comes to a close, with looming US inflation data a reminder of how surging prices and interest rates have fundamentally shifted investor thinking over the past 12 months.
Oil prices rose on expectations of a drop in Russian crude supply, helping to offset worries of a hit to U.S. transport fuel demand as a pending deep freeze Arctic storm threatens travel during the Christmas holiday season.
The dollar was steady as strong US data bolstered the case for ‘higher-for-longer’ monetary policy from the Federal Reserve, reversing two decades of cheap money, and making it harder for investors to predict when a pivot in policy will eventually come, reported Reuters.
The MSCI All Country stock index (.MIWD00000PUS) was down 0.15%, having fallen about 20% so far this year.
The benchmark has reversed all of its 17% gains in 2021 after central banks hiked interest rates to quell decades-high inflation fuelled by war in Ukraine pushing up energy prices.
The STOXX (.STOXX) index of 600 European companies was up 0.2%, still down more than 12% for the year after gaining 22% in 2021.
Eren Osman, managing director of wealth management at Arbuthnot Latham & Co, said the “seismic shift” in the interest rate environment this year should prompt investors to review their strategic allocations and get ready for more volatility.
“You’ve got bond yields now in the mid-to-high single digits on decent quality paper and investors now need to be paying attention to that,” Osman said.
This year’s shift from negative to a positive correlation between stocks and bonds - meaning both now fall or rise in tandem rather than moving in opposite directions - is also likely to stay for now Osman said.
The US Conference Board’s leading indicator on Thursday, a gauge of future U.S. economic activity, fell for a ninth straight month in November, pointing to a likely recession in 2023 in the United States.
“We do think we’ll see a recession, it’s likely to be mild. I think the focus for markets in the first half of the year is really around earnings,” Osman said.
US stock index futures, were little changed.
The benchmark S&P 500 index (.SPX) is set for a drop of more than 18% this year, its worst such performance since the global financial crisis of 2008.
Fed favourite
The release on Friday before Wall Street’s opening bell of US personal consumption expenditures (PCE) data, often dubbed the Federal Reserve’s preferred measure of inflation, will be closely watched.
