Global shares sink, dollar soars as rate-hike outlook looms

Stock markets dropped across the globe on Friday and the dollar leapt to six-week highs as jobs data revived expectations the US central bank would stick to its monetary tightening path.

Data from US Labour Department overnight showed monthly producer prices had accelerated in January and the number of Americans filing new claims for unemployment benefits had unexpectedly fallen last week - another sign of a tight labour market keeping pressure on inflation.

MSCI's broadest index of world stocks (.MIWD00000PUS) fell 0.4% to one-week lows at 645.73, reported Reuters.

MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 1.36% to 529.49, its lowest since Jan. 9. The index is down 3% for the month and set for its third straight week of losses.

In Europe, the pan-European STOXX 600 index (.STOXX) dropped 0.64%, set for its first daily fall this week. The German DAX (.GDAXI) was down 0.82%. French blue chip stocks (.FCHI) and the Britain's FTSE (.FTSE) slipped from all-time highs, down 0.67% and 0.23% respectively.

Stock performance across the Atlantic was also set to follow suit with S&P 500 futures down 0.63%.

It's hard to gauge how markets will interpret the Fed's next moves on inflation, said Florian Ielpo, head of macro at Lombard Odier Asset Management.

"The markets are torn between two instruments. Intra-day stock prices and credit spreads see a lot of volatility and nervousness while there has been no surge in implied volatility options," said Ielpo.

Traders have raised their bets on how far they see the Fed hiking, now pricing in a peak at around 5.3% in July. Bets on a rate cut at year-end have declined, with traders pricing in a 75% chance of a 25 bps rate cut in December.

Two Fed officials said on Thursday the US central bank probably should have lifted interest rates more than it did early this month, and they warned that additional rises in borrowing costs were essential to lower inflation back to desired levels.

At its Jan. 31-Feb. 1 policy meeting, the Fed opted to moderate the pace of interest rate rises, lifting rates by 25 basis points to the 4.50%-4.75% range after a series of jumbo rate increases last year.

But since then economic data has pointed to a tight labour market and sticky inflation keeping the pressure on the central bank to remain on its tightening path.