LONDON—A stagnant German economy and sliding yen overshadowed buoyant tech earnings to send shares lower on Friday, with investors betting that next week’s batch of central bank meetings will point towards a levelling off in interest rates.
Oil headed for a second week of declines after data on Thursday showing the U.S. economy slowing more than expected in the first quarter.
The Japanese yen fell to a nine-year low against the euro after the Bank of Japan left its ultra-easy monetary policy unchanged. The dollar headed for a second straight monthly loss.
Muted global shares were underpinned by Thursday’s tech-led rally on Wall Street, when a strong quarterly report from Facebook parent Meta Platforms Inc. overshadowed concerns over slowing U.S. economic growth.
The MSCI All Country stock index eased, but remains up more than 7 percent so far this year.
The STOXX index of European companies eased 0.36 percent after data showed the German economy stagnated in the first quarter.
The flash preliminary eurozone GDP growth figure for the first quarter is due at 0900 GMT, ahead of next week’s European Central Bank meeting.
The International Monetary Fund called on the ECB to keep raising interest rates until the middle of 2024 to rein in inflation.
Investors hope next week’s ECB and Fed meetings will confirm that rates are peaking.
“You have got this thinking that central banks probably have one more hike in them and perhaps we will then see a plateau or potentially rate cuts,” said Mike Hewson, chief markets strategist at CMC Markets.
“I think we will see a plateau but they won’t come down quickly, and I don’t think the penny has dropped on that in markets.”
Patrick Spencer, vice chair of equities at RW Baird, said the Fed is likely to raise interest rates by 25 basis points, though it could be postponed for a month due to concerns about regional banks.
“You do have concerns about the U.S. debt ceiling, which worries me more than the regional banks because all the major regional banks have reported and they have all said credit quality is fine,” Spencer said.
“Futures are saying interest rates will be lower than Fed Funds by year end, indicating a decline. I think certainly they will pause.”
Bank of Japan Review
The Bank of Japan kept its loose monetary settings unchanged but revamped its guidance on the future path of policy, and announced a “broad-perspective” review with a planned time frame of around one to one-and-a-half years.In its first meeting under new governor Kazuo Ueda, the central bank modified its forward guidance by removing a pledge to keep interest rates at “current or lower levels.”
Japan’s Nikkei jumped 1.4 percent while the yen initially weakened before turning 1 percent higher against the dollar, and Japanese government bonds rallied.
“There’s still a major consensus call that shorting the dollar to buy the yen will be the big move of the year, but we’re looking for the catalyst, which would be a signal from the BoJ it is ready to tighten policy,” said Simon Harvey, head of FX analysis at Monex Europe.
Harvey said that signal could come in June.
China shares gained 0.70 percent, while Hong Kong’s Hang Seng index was 0.3 percent higher. Geopolitical tensions along with worries over the global economic outlook have crimped investor sentiment in recent weeks.
Markets are pricing in an 85 percent chance of the Fed raising interest rates by 25 basis points at its meeting next week, the CME FedWatch tool showed. Traders expect the hike to be the last in the U.S. central bank’s fastest monetary policy tightening cycle since the 1980s.
The yield on 10-year Treasury notes eased to 3.45 percent, after clocking their biggest intraday gain since March on Thursday as investors weighed the looming debt ceiling showdown in Washington. The yield on the 30-year Treasury bond eased to 3.696 percent.
The dollar index, which measures the currency against six rivals, was 0.532 percent higher, with the euro down 0.4 percent to $1.098.
U.S. crude eased 0.16 percent to $74.65 per barrel and Brent was trading at $78.42, flat on the day.
