By Sinéad Carew and Sophie Kiderlin
NEW YORK/LONDON, May 15 (Reuters) – Global equity indexes edged lower on Friday while bond yields rose as investor excitement about tech stocks gave way to inflation fears and traders raised bets that the Federal Reserve will raise interest rates this year.
US President Donald Trump left China on Friday without much success on trade or concrete help from Beijing to end the war on Iran.
And uncertainty over a Middle East peace deal sent oil prices higher, adding to concerns about inflationary pressures after two sets of higher inflation readings for April were released earlier this week.
The S&P 500 and Nasdaq traded lower after rising to record closes in artificial intelligence-related technology stocks over the past two sessions.
“There’s a realization that the market was ahead of itself. It wasn’t paying enough attention to what the bond market and economic data were telling it. It’s contributing to this growth in AI trading,” said Kenny Polcari, chief market strategist at Slatestone Wealth.
“Finally the market is paying attention to what the bond market and economic data are saying. Inflation remains strong and is likely to move higher in the coming months.”
EQUIVALENT GOES IN REVERSE
On Wall Street the Dow Jones Industrial Average fell 537.29 points, or 1.07%, to 49,526.17, the S&P 500 fell 92.74 points, or 1.24%, to 7,408.50 and the Nasdaq Composite fell 410.08, to .
Still, the S&P 500 posted its seventh straight weekly gain, its longest winning streak since late 2023. But the Nasdaq and Dow fell for the week, with the Nasdaq snapping a six-week winning streak.
The MSCI gauge of global shares fell 17.06 points, or 1.53%, to 1,099.00.
Earlier, the pan-European STOXX 600 index ended down 1.48%. MSCI’s broad index of Asia-Pacific shares outside Japan fell 2.5% and Japan’s Nikkei fell 1.99% after data showed inflation rose to 4.9% in April, the fastest pace in three years, keeping the Bank of Japan on track to raise rates.
South Korea’s Kospi index fell more than 6% on Friday after a run to highs in recent months. It is up 77.8% year to date.
GOVERNMENT BONDS GET A SPIKE
In government bonds, US Treasury yields rose to their highest levels in a year as rising oil prices added to fears that ongoing energy disruptions in the Middle East could add to inflation.
The yield on the benchmark US 10 notes rose 13.8 basis points to 4.597%, from 4.459% late Thursday while the 30-year bond yield rose 10.9 basis points to 5.122%.
The yield on the 2-year note, which usually moves in line with the Federal Reserve’s expected interest rate, rose 8.7 basis points to 4.079%, from 3.992% late Thursday.
Financially, the dollar rose for its fifth straight day, putting it on track for its biggest weekly gain in two months, as inflationary pressures fueled bets on a Fed rate hike this year.
Traders ended up betting on a 38.8% chance of a 25-point hike by the end of the year compared to less than a 14% chance last week, according to CME Group’s FedWatch tool, which showed a 9.9% chance of a 50-point hike by the end of the year.
Friday is Jerome Powell’s last day as Fed Chair before Kevin Warsh takes over. The incoming Chairman was appointed by Trump, who forced Powell to cut interest rates.
“The market is going to test Kevin Warsh. They’re going to push him to see what he really stands for,” Polcari said.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.33% to 99.28, while the euro was down 0.38% at $1.1624.
Against the Japanese yen, the dollar strengthened 0.25% to 158.74.
Sterling fell for a fifth straight day, and hit its lowest level in more than five weeks. It ended down 0.61% at $1.3318 after sliding 0.9% on Thursday.
Britain’s ruling Labor Party has said it has agreed to allow Greater Manchester Mayor Andy Burnham to seek a return to parliament, a step towards a possible challenge to Prime Minister Keir Starmer’s leadership. Meanwhile, British Home Affairs Minister Steve Reed urged Labor Party lawmakers to follow Starmer, saying there is no one who can replace him who has shown enough support.
Oil prices rose on supply concerns after Foreign Minister Abbas Araqchi said Iran “does not trust” the US and is only interested in negotiating if Washington is willing. Trump said he was getting impatient with Iran and that he and Chinese leader Xi Jinping agreed that Iran would not have a nuclear weapon and that it must reopen the Strait of Hormuz.
US crude gained 4.2%, or $4.25, to $105.42 a barrel while Brent rose to $109.26 per barrel, up 3.35%, or $3.54, on the day.
Among precious metals, gold fell to more than a one-week low under pressure from rising dollar and Treasury yields and bets on higher interest rates.
Local gold fell 2.35% to $4,540.11 an ounce. US gold futures fell 3.29% to $4,524.30 an ounce.
(Reporting by Sinéad Carew and Stephen Culp in New York, Sophie Kiderlin in London and Stella Qiu in Sydney; Editing by Sam Holmes, Mark Potter, Joe Bavier, Barbara Lewis and David Gregorio)
