Shares fall with oil prices amid concerns about U.S. Fed rate hikes

By Sinéad Carew

NEW YORK (Reuters) – Stock markets around the globe fell on Friday and oil prices settled lower after U.S. economic data prompted bets that the Federal Reserve would raise interest rates more than expected and keep them higher for longer to battle stubborn inflation.

Friday’s data showed a year-over-year 0.8% increase in export prices versus expectations for a decline of 0.2%. This added to the inflation concerns fueled by Thursday’s data, which showed accelerating monthly producer prices in January and lower-than-expected unemployment benefits claims for last week.

Along with hawkish comments from two Fed officials on Thursday, and Goldman Sachs and Bank of America forecasts for three more Fed rate hikes this year, the data led some investors to start bracing for more tightening, according to Shawn Cruz, head trading strategist at TD Ameritrade in Chicago.

“The thing that kicked this off yesterday was the producer prices coming in elevated. It means one or two things. Companies are going to pass the costs on to consumers, causing more inflation, or absorb these higher costs, which would result in lower profitability. Either way it’s not good,” said Cruz.

And while the Fed can potentially influence inflation, domestically higher export prices point to things the U.S. central bank has less ability to control.

“That shows that global demand is coming back on line. That might make it a little bit more difficult to bring inflation down,” Cruz said.

Traders have raised their bets on how far they see the Fed hiking in recent sessions, and are now pricing in a peak at around 5.3% in September.

The Dow Jones Industrial Average rose 111.21 points, or 0.33%, to 33,808.06, the S&P 500 lost 12.61 points, or 0.31%, to 4,077.8 and the Nasdaq Composite dropped 78.81 points, or 0.66%, to 11,777.03.

The pan-European STOXX 600 index had closed down 0.20% and MSCI’s gauge of stocks across the globe shed 0.41%.

Emerging market stocks lost 1.05%.

U.S. Treasuries yields lost ground during the trading day. However, earlier, with the market placing more bets on the Fed keeping rates higher for longer, yields on 10-year notes touched their highest level since early November at 3.929%.

Benchmark 10-year notes were recently down 1.9 basis points to 3.824%, from 3.843% late on Thursday. The 30-year bond was last down 1.9 basis points to yield 3.8848%, from 3.904%. The 2-year note was last was unchanged to yield 4.6191%, from 4.619%.

While it has since lost ground, the dollar index earlier hit a six-week high against a basket of currencies on Friday as traders ramp up bets for Fed rate hikes.

However, the greenback lost ground as the session wore on with the euro recently up 0.23% to $1.0693 while Sterling was last trading at $1.2042, up 0.41% on the day.

The Japanese yen weakened 0.13% versus the greenback at 134.13 per dollar.

Oil futures fell sharply on Friday and registered a weekly decline, pressured by signs of ample supply along with concerns of more Fed interest rate hikes, which could weigh on demand.

U.S. crude settled down 2.74% at $76.34 per barrel and Brent finished at $83.00, down 2.51% on the day.

Gold prices were up for the day but down for the week weighed down by a stronger dollar and rising bond yields.

Spot gold added 0.3% to $1,842.47 an ounce. U.S. gold futures fell 0.05% to $1,840.40 an ounce.

(Reporting by Sinéad Carew in New York, Nell Mackenzie in London; Editing by Hugh Lawson, Sharon Singleton and Jonathan Oatis)