Gold rose 0.6% to 4,342 dollars an ounce on Friday, while the dollar index held at 99.09 points. The pan-European STOXX 600 gained 0.4% in a limited recovery, while the MSCI gauge of Asia-Pacific shares excluding Japan fell 1.5%, as rising bond yields, inflation concerns and tighter monetary policy continued to weigh on global markets.
Gold and dollar under pressure from yields
Gold recovered some of its losses after falling about 2% in Thursday’s session. The rebound was supported by geopolitical risks, which bolstered demand for the metal, while its gains remained capped by rising bond yields, which increase the cost of holding non-yielding assets.
The yield on 10-year US Treasury bonds reached 4.979% earlier on Friday, its highest level in about three years, before easing to 4.946% as oil prices fell from their peak. The two-year Treasury yield reached 4.5961%, its highest level in 14 months.
The dollar index held at 99.09 points after rising 0.4% on Thursday, remaining close to its highest level in a week, supported by higher bond yields and renewed expectations of a US rate hike. The euro edged down to 1.161 dollars, while sterling rose to 1.352 dollars after data showed stronger-than-expected UK growth in July.
The dollar fell 0.1% against the Japanese currency to 154.22 yen, as the yen drew support from expectations of tighter Japanese monetary policy. Four sources familiar with the matter said the Bank of Japan was on course to raise interest rates next week, most likely by 25 basis points, and could signal a faster pace of tightening in the future if the risk of inflation overshooting its targets increased. The comments followed data released on Friday showing that wholesale-price inflation in Japan continued to rise.
Limited European recovery, Asian losses
The STOXX 600 rose 0.4% to 638.63 points by 08:37 GMT, while other major European bourses also advanced. The index was nevertheless still on track for its biggest weekly loss in about two months, pressured by higher bond yields and energy prices.
The limited advance came after European shares closed at their lowest level in two months on Thursday, following the European Central Bank’s interest-rate hike and warning that higher energy costs were driving inflation higher. The yield on 10-year German government bonds remained near levels not seen in decades, as investors awaited the path of global interest rates.
At the corporate level, shares in Italian semiconductor testing company Technoprobe rose 3.6% after its client TSMC reported strong revenue in August, while shares in German brokerage flatexDEGIRO fell 4.9% after the surprise resignation of its supervisory board chairman.
In Asia, the MSCI gauge of Asia-Pacific shares excluding Japan fell 1.5%, while Japan’s Nikkei declined 1.9%, as risk assets came under pressure from higher borrowing costs and expectations of tighter monetary policy.
The rise in yields extended to Asian debt markets, with the yield on three-year Australian government bonds jumping 18 basis points to 5.047%, its highest level in 15 years. The yield on 10-year Japanese government bonds rose to 2.97%, amid expectations that the Bank of Japan will raise rates next week to their highest level in 31 years.
Oil fuels inflation concerns
Brent crude reached 109.97 dollars a barrel earlier on Friday, its highest level in four months, before retreating to 105.90 dollars. It nevertheless remained on track for a weekly gain of about 10%. The surge came as disruptions to oil flows through the Strait of Hormuz continued and risks in the Red Sea escalated.
Rising energy prices heightened concerns about inflation and the path of monetary policy, as traders priced in a 67% probability of the Federal Reserve raising interest rates at its next meeting. Markets are awaiting US consumer-price data due later on Friday for clearer signals on the direction of interest rates.
Market moves reflect the links between energy prices, inflation and monetary policy: higher oil prices push expectations for tighter monetary policy and bond yields higher, supporting the dollar and weighing on stocks, while gold benefits from safe-haven demand, although its gains remain constrained by rising yields.
