Investors speculate on terminal rates, stressing stocks

Global stocks seemed poised to conclude the week with a downward trend as investors placed their bets on interest rates staying elevated for a longer duration to curb persistent inflation. This belief bolstered the dollar and caused oil prices to decline. In the Euro zone, government bond yields dropped after reports indicated a notable slowdown in German business activity in June, while French business activity contracted for the first time in five months. Economic concerns in Asia also arose as Japan's core consumer inflation surpassed expectations in May. Meanwhile, gold stabilized after hovering near a three-month low and was on track for its largest weekly decrease since February due to the strengthening greenback, fuelled by indications from the U.S. Federal Reserve Chief Jerome Powell regarding upcoming rate hikes. The MSCI All Country stock index experienced a decline of 0.38% at 673.66 points, marking a 1.6% drop for the week but still reflecting an 11.5% increase for the year. 

Similarly, the STOXX 600 index in Europe saw a slight decrease and was expected to finish the week on a lower note. Concerns about global economic growth emerged due to the absence of stimulus for China's struggling recovery, unexpected rate hikes in Australia and Canada, and the Federal Reserve's projection of two additional rate hikes. In terms of oil and currency markets, oil prices fell for the second consecutive session, with a weekly decline of over 3%, due to a more hawkish stance from central banks, which cast doubt on demand. Additionally, the rising value of the dollar made oil more costly for certain customers. The U.S. dollar index experienced a 0.59% increase, reaching 102.99, and was set to achieve a weekly gain after three weeks of losses. The pound, still adjusting to the news of the Bank of England's 50 basis points rate hike on Thursday, fell by 0.31% to $1.2709, potentially resulting in a weekly loss of almost 1% and breaking a three-week streak of gains. Similarly, the euro dropped by 0.8% to $1.0869. In Asian markets, the MSCI's broadest index of Asia-Pacific shares outside Japan experienced a 1.2% decline, marking its worst week in nine months with a loss of over 4%. Japan's Nikkei fell by 1.45%, indicating a 2.7% weekly drop and breaking a 10-week winning streak.

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