European equities fall again after a tough week for stock markets
Europe's main stock exchanges fell again on Friday as fears of a sudden end to central bank stimulus and rising tensions between Western powers and Moscow continued to push global stock indexes to one of their worst starts of the year.
Strong earnings from Apple supported the battered tech and US markets somewhat, but traders struggled to draw a line under the global sell-off that is now firmly entrenched.
The pan-European STOXX 600 index fell almost 1%, marking its fourth consecutive weekly drop.
The MSCI's main global index, which tracks 50 countries, is down more than 8% for the month, while the dollar had its best week in seven months due to bets that US interest rates could now rise five times this year.
"As the Federal Reserve sounds much more hawkish, it has shaken the markets," said Jeremy Gatto, a multi-asset portfolio manager at Unigestion in Switzerland.
"Markets can live with a rate hike, but the main question remains around the balance sheet," he added. Markets have been stimulated by all the stimulus introduced during the COVID-19 crisis, "so if it starts cutting liquidity, that will change the game".
In its latest policy update on Wednesday, the Fed indicated that it would likely raise rates in March, as many had expected, and reiterated plans to stop buying bonds during the pandemic this month before starting to significantly reduce its assets.
The prospect of a faster or bigger US interest rate hike helped the dollar rise to its best weekly reading in seven months. The dollar rose to 115.43 yen, approaching this year's high of 116.34 on 4 January.
Meanwhile, the euro suffered losses as the single currency stuck near a 20-month low of $1.1133.
The yield on the benchmark 10-year Treasury note rose to 1.82% from Thursday's US close of 1.80%. The two-year yield, which is more sensitive to interest rate hike expectations, was 1.19%.
European bond yields also rose. The yield on German 10-year bonds, the benchmark for the eurozone, rose by around 2 basis points in early trading. It rose by half a bp to -0.05%, although it still failed to cross the zero threshold.
Attention was also on Italy, where bond yields rose about 4 basis points after Thursday's afternoon rally as its parliament struggled to elect a new president.
Oil prices remain high, expected to rise for the sixth time in a week, amid concerns over tight supplies as major producers continue their policy of limited production increases amid rising demand for the fuel.
Brent crude futures rose 57 cents, or 0.6 per cent, to $89.91 a barrel, just below the $91.04 reached earlier in the week, which was the highest level since October 2014.
The sixth week of gains will also mark the longest weekly winning streak for Brent since October last year, when Brent prices rose for seven weeks and US WTI rose for nine weeks.
Prices have risen about 15% this year amid geopolitical tensions between Russia, the world's second-largest oil producer and a key supplier of natural gas to Europe, and the West over Ukraine, as well as threats to the United Arab Emirates by Yemen's Husi movement, which have raised concerns about energy supplies.
"Where Brent crosses the $90 level, we see some selling because of a sense of accomplishment, but investors are starting to buy again when prices fall slightly as they remain cautious about possible supply disruptions due to rising geopolitical tensions," said Amanda Radebe, senior economist at CFD Stocks.
"The market expects supply to remain tight as OPEC is likely to maintain its existing policy of gradually increasing production," he said.
The market is focused on the February 2 meeting of the Organisation of Petroleum Exporting Countries (OPEC) and allies led by Russia, known as OPEC . Several sources in the group told Reuters that the company is likely to maintain its planned increase in oil production for March.