The US dollar is poised for a big weekly gain, towering near one-year highs as a hawkish turn from the Federal Reserve chief sent short-term Treasury yields higher, leaving equities in the red.
Asian shares on Friday looked to end a brutal week on a steadier note, helped by Chinese data showing retail sales in the world’s second-biggest economy beat forecasts in October in a welcome sign for consumer spending, although other indicators missed.
Overnight, Fed chair Jerome Powell said there was no need to rush rate cuts with the economy still growing.
Fed fund futures slumped, with December off seven ticks and just 71 basis points of rate cuts implied by the end of 2025.
Goldman Sachs now sees a greater risk that the Fed could slow the pace of easing sooner, possibly as soon as the December or January meetings, while JPMorgan still tips the Fed to cut in December and a slow-down after.
“After the sugar hit of Trump’s election and its subsequent impacts on expectations for company profits, the market’s enthusiasm is being watered-down by greater interest rate uncertainty, especially going into next year,” said Kyle Rodda, a senior analyst at Capital.com.
Nasdaq futures fell 0.9 per cent while S&P 500 futures eased 0.6 per cent.
A fall in healthcare stocks led major European stock indices lower on Friday, with vaccine markers hit particularly hard after Trump nominated Robert F Kennedy Jr to lead the top US health body.
Overall, the healthcare subsector is underperforming, down two per cent, compared with a 0.7 per cent drop for the broader STOXX 600, which last traded down 0.4 per cent.
MSCI’s broadest index of shares steadied but was still down 1.34 per cent for the week.
Japan’s benchmark Nikkei average closed up 0.28 per cent on Friday, driven by a pullback in the yen, which boosted the outlook for Japanese exporters.
The dollar has gained for five days on the yen, and was up another 0.6 per cent to 155.27, the highest level since July.
Chinese shares trimmed earlier losses as official data showed retail sales rose by a better-than-expected 4.8 per cent in October, but growth in industrial output missed forecasts and declines in property investment deepened.
China’s blue chips closed down 0.2 per cent.
On the US policy front, even before Powell spoke, producer price data showed the core gauge topped expectations.
Short-term Treasury yields remained elevated on Friday.
The two-year yields held at 4.358 per cent, having jumped six basis points overnight to close at 4.357 per cent.
“Markets are taking on board Powell and Bailey’s speeches last night,” James Rossiter, head of global macro strategy at TD Securities told Reuters, referring to Bank of England governor Andrew Bailey’s annual speech at Mansion House.
While both signalled little change in December, Powell hinted the US would cut rates soon while Bailey “lay the ground for more cuts”, Rossiter said.
That lifted the dollar across the board. The euro has been hit especially hard this week, as expectations for more aggressive policy easing in Europe further undermined the single currency already trading at one-year lows.
The dollar is set for a big weekly gain of 1.7 per cent against its major peers.
The euro was up 0.35 per cent on the day at $US1.056625, but was set for a weekly loss of 1.4 per cent.
Markets are, however, more dovish on the ECB and see a decent 36 per cent chance it could step up its easing in December with a half-point move to guard against growth risks.
The lofty dollar has sent gold prices down 4.4 per cent this week to $US2,565, bringing the monthly loss so far to a sizeable 6.5 per cent.
Brent crude futures fell 90 cents to $US71.66, on the prospect of US supply rising under Trump’s energy policies.
This post was originally published on Michael West.