- Global shares rose, shrugging off a more hawkish outlook for US interest rates that bolstered the dollar.
- The euro hit 17-month lows, under pressure from a COVID-19 surge in Europe and the dollar’s allure for yield-seeking investors.
- US markets were closed for the Thanksgiving holiday.
Global shares edged higher Thursday, shaking off the prospect of faster interest-rate rises from the Federal Reserve, although trading was light given the US Thanksgiving Day holiday.
Meanwhile, the euro slid to its lowest level in 17 months against the dollar, under pressure as cases of COVID-19 erupted across Europe.
US stock futures traded higher, with markets closed Thursday for the holiday, and closing early on Friday. S&P 500 and Dow Jones futures each rose 0.2%, while Nasdaq 100 futures gained 0.1%. More broadly, the MSCI All-World index edged up 0.1%.
The minutes of the Fed’s most recent meeting, released Wednesday, suggested policymakers are growing anxious about the longer-term effects of inflation, which is running at its fastest pace in 30 years.
Markets show investors are now pricing in two rate hikes in 2022, rather than one, as had been the case just weeks ago.
Two-year Treasury yields have tripled in two months, while the dollar has risen against practically every major currency so far this year. The more expensive parts of the stock market, such as technology shares, have tended to come under greater pressure. But with interest rates still near rock-bottom, there have been no protracted sell-offs.
“The theme of ‘selling winners’ continued yesterday, with the tech sector again leading losses. Despite that, the market remains within 2% of its all-time high, and it remains tough to find and outline a convincing bearish argument,” Caxton FX strategist Michael Brown said in a daily note.
“Meanwhile, the dollar continued its march higher yesterday, benefitting from a significant pick-up in front-end yields, including the 2-year hitting new cycle highs,” he said.
The euro skidded to its lowest against the dollar since June 2020, and was last up 0.2% at $1.1221. The move was driven in part by the explosion in COVID-19 cases in Europe and ensuing restrictions on activity, as well as investors ditching low-yielding currencies such as the yen and the Swiss franc. The euro has lost around 8% this year, and was last up 0.2%, against the dollar.
Europe has become the epicenter once again of coronavirus infections. Cases have broken records in parts of the region and a number of countries, including Austria, the Netherlands and Sweden, have imposed restrictions.
Equity markets in the region were relatively unperturbed, boosted by the euro’s weakness. The pan-continental Stoxx 600 was up 0.45%, led by gains in defensive stocks such as utilities and healthcare.
But the surge has taken a toll on the indices of countries hardest hit by the recent outbreak. Frankfurt’s DAX and Amsterdam’s AEX are among the worst performers in the past week, with drops of 1.8% and 2% respectively. Meanwhile, Vienna’s ATX has lost 1.4%, compared with a 0.5% gain for London’s FTSE 100.
In Asia, the major benchmark indices came under pressure from growing expectations for a faster US rate rise. That tends to weigh on emerging markets, as investors can secure higher returns in dollar-based assets.
Seoul’s KOSPI lost 0.8% after the Bank of Korea raised rates, while the Shanghai Composite fell 0.2%. Tokyo’s Nikkei rallied 0.7%, making it one of the best performing indices in the region, thanks to the yen — which tends to trade inversely to stocks — sinking to near-five-year low against the dollar.
Oil slipped back, as the US prepared to release some of its strategic crude stockpiles to temper this year’s steep rises in the cost of gasoline, heating oil and other refined products. Brent crude and WTI were both down 0.5% at $81.88 a barrel and $77.97, respectively.