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GLOBAL MARKETS-Stocks stumble, yields jump on rates outlook; oil rallies

Fri, 14th Jan 2022 21:41

* U.S., European and Asian stocks down

* Profitability warning from JPMorgan casts pall

* Falls follow signals from U.S. Fed policymakers

* Oil rallies; U.S. dollar steady after 3-day decline
(New throughout, updates prices, market activity and comments)

By Koh Gui Qing

NEW YORK, Jan 14 (Reuters) - Global stock markets stumbled
again on Friday and U.S. Treasury yields climbed as cautious
investors worried about how imminent U.S. interest rate hikes
would affect the economy.

A warning from the largest U.S. bank JPMorgan Chase & Co
that its profitability may fall below a medium-term
target cast another pall on Wall Street.

By early evening, MSCI's gauge of stocks across the globe
had shed 0.36%. The pan-European STOXX 600 index
closed down 1.01% and had its worst week since Nov. 26,
weighed in part by declines in technology stocks.

In the United States, a spate of bargain hunting toward the
end of the day helped stocks to narrow losses. The Dow Jones
Industrial Average fell 0.56%, the S&P 500 ended
flat, and the Nasdaq Composite flipped into the black,
rising 0.59%.

"We are now entering a period where the Federal Reserve will
engage in a never-before-seen experiment: raising interest rates
off zero and reducing the size of its balance sheet in the same
year," said Nicholas Colas, co-founder of DataTrek Research.

"The market is still left wondering what results will come
from their decisions," Colas said.

In line with expectations of rising rates, benchmark 10-year
Treasury yields jumped to 1.7859%, rebounding toward
a two-year high of 1.8080% struck earlier this week. Two-year
Treasury yields hit a high of 0.9730%, a level last
seen in February last 2020.

European bond yields also rose in choppy trade as investors
focused on monetary policy tightening by central banks, though
sharp falls in Germany's benchmark 10-year yield
earlier this week led it to notch its biggest weekly fall in 10
weeks.

Meanwhile, in Asia, the five-year Japanese government bond
yield jumped to its highest since January 2016 and the yen rose
after a Reuters report that Bank of Japan policymakers are
debating how soon they can start an eventual interest rate hike.

Such a move could come even before inflation hits the bank's
2% target, sources said.

The dollar, which has been slugged by a three-day selling
spree as investors bet that expectations of rate rises are
already priced into the currency, finally steadied on Friday.

The dollar index, which measures the greenback
against a basket of six currencies, bounced 0.34% to 95.167,
pulling away further from a two-month low hit this week.

A bounce in the dollar dragged on the euro, which
lost 0.34% to 1.14135.

Sterling also slipped 0.22% to 1.36780, taking a
breather after this week's rally that pushed it to a 2-1/2-month
high.

GDP data on Friday showed that Britain's economy grew faster
than expected in November and its output finally surpassed its
level before the country went into its first COVID-19 lockdown.

Asian shares had fallen overnight after Fed Governor Lael
Brainard on Thursday became the most senior central banker to
indicate the Fed will hike rates in March.

Other Fed officials have shown their willingness to raise
rates, after data this week showed U.S. consumer prices surged
7% year-on-year.

Bucking the weakness in equity markets, oil futures rose
again, on course for a fourth weekly gain, boosted by supply
constraints.

Brent crude futures rallied 1.9% to a two-and-a-half
month high of $86.44 a barrel. U.S. West Texas Intermediate
crude jumped 2.6% to $84.28. Both Brent and U.S. futures
entered overbought territory for the first time since late
October.

Rising bond yields weighed on non-yielding gold, with spot
gold down 0.31% at $1,816.53 per ounce.

"It’s clearly the impact of monetary policy tightening
that’s being felt in markets here," said Guillaume Paillat,
multi-asset portfolio manager at Aviva Investors.

Paillat, who is expecting at least four Fed rate hikes this
year, said it was "pretty much a done deal" that the tightening
cycle would start in March.

"What matters over the coming days is going to be more about
earnings," he added. "There’s still a bit of room for earnings
to surprise to the upside."

(Reporting by Koh Gui Qing and Elizabeth Howcroft; editing by
Jonathan Oatis and David Gregorio)

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