LONDON: Global shares were mixed on Friday as the last full trading week of the year comes to a close, with looming US inflation data a reminder of how surging prices and interest rates have fundamentally shifted investor thinking over the past 12 months.
Oil prices rose on expectations of a drop in Russian crude supply, helping to offset worries of a hit to US transport fuel demand as a pending deep freeze Arctic storm threatens travel during the Christmas holiday season.
The dollar was steady as strong US data bolstered the case for 'higher-for-longer' monetary policy from the Federal Reserve, reversing two decades of cheap money, and making it harder for investors to predict when a pivot in policy will eventually come.
The MSCI All Country stock index was down 0.15 per cent, having fallen about 20 per cent so far this year.
The benchmark has reversed all of its 17 per cent gains in 2021 after central banks hiked interest rates to quell decades-high inflation fuelled by war in Ukraine pushing up energy prices.
The STOXX index of 600 European companies was up 0.2 per cent, still down more than 12 per cent for the year after gaining 22 per cent in 2021.
Eren Osman, managing director of wealth management at Arbuthnot Latham & Co, said the "seismic shift" in the interest rate environment this year should prompt investors to review their strategic allocations and get ready for more volatility.
"You've got bond yields now in the mid-to-high single digits on decent quality paper and investors now need to be paying attention to that," Osman said.
This year's shift from negative to a positive correlation between stocks and bonds - meaning both now fall or rise in tandem rather than moving in opposite directions - is also likely to stay for now Osman said.
The US Conference Board's leading indicator on Thursday, a gauge of future US economic activity, fell for a ninth straight month in November, pointing to a likely recession in 2023 in the United States.
"We do think we'll see a recession, it's likely to be mild. I think the focus for markets in the first half of the year is really around earnings," Osman said.
US stock index futures were little changed. The benchmark S&P 500 index is set for a drop of more than 18 per cent this year, its worst such performance since the global financial crisis of 2008.
The release on Friday before Wall Street's opening bell of US personal consumption expenditures (PCE) data, often dubbed the Federal Reserve's preferred measure of inflation, will be closely watched.
It will give further indications of whether the rise in prices is continuing to moderate, even if more Fed rate rises are expected in 2023.
Economists polled by Reuters expect the core PCE price index to rise 0.2 per cent for November, while predicting a 4.7 per cent rise for the year through November.
Fed Chair Jerome Powell has said the Fed will deliver more hikes in 2023 even as the economy slips towards a recession.
In Asia, China stocks eased 0.3 per cent, while Hong Kong stocks fell 0.4 per cent as China grapples with soaring Covid-19 infections, in the wake of Beijing dismantling its strict zero-Covid policy to contain the virus.
In the currency market, the Japanese yen was up 0.2 per cent versus the dollar to 132.640. It is on track for its third largest weekly gain this year of more than 3 per cent, after the central bank stunned markets on Tuesday by tweaking its policy on government bonds.
"Investors should prepare themselves for rapid yen appreciation against the dollar once the market sees monetary policy in Japan and the US flipping direction," Mizuho analysts said.
Data on Friday showed Japan's core consumer inflation in November hit a fresh 40-year high, fuelling market expectations that Japan's central bank will further roll back its massive stimulus next year.
The dollar index, which measures the US currency against six peers, was slightly weaker at 104.34. The euro was slightly firmer at $1.060. Sterling was last trading at $1.2048, little changed on the day. - Reuters
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