* Analysts ask if Bank of England will follow Fed
* Stocks remain close to this week's record highs
* Treasury yields rise; dollar near two-month highs
* Gold gains ground after earlier plunge
By Huw Jones
LONDON, June 18 (Reuters) - Wall Street headed for a weak
start on Friday as investors reassessed their bets on recovery
plays after the U.S. Federal Reserve's hawkish stance further
fuelled the dollar, while denting prices of commodities and
other reflation plays.
U.S. stock futures were down 0.5% to 0.7% with losses
accelerating an hour ahead of the market open, when St. Louis
Federal Reserve president James Bullard told CNBC that inflation
was more intense than expected.
Those comments sent the U.S. dollar index to 92.074,
the highest in more than two months, and U.S. 10-year Treasury
yields back above 1.5% after Thursday's drop.
"It's a bit of dust settling, with no panic and the grown up
reaction is encouraging," said Ned Rumpeltin, European Head of
Currency Strategy at TD Securities.
While the Fed messaging on Wednesday indicated no clear end
to supportive policy measures such as bond buying, signals of
faster-than-expected rate hikes indicated its concern about
inflation as the U.S. economy recovers from the COVID-19
pandemic.
The comments led to moves like the U.S. Treasury yield curve
rolling over dramatically and sending the dollar higher, helping
to suck momentum out of reflation trades that bet on recovery.
"The Fed was very important for market psychology and will
continue to resonate for some time, but we knew it was coming
and it was just a question of when after the U.S. and global
economies improved," Rumpeltin said.
Friday is also "quadruple witching day" on Wall Street when
options and futures on stocks and stock indexes expire, which
can trigger volatility in markets around the close.
"The popular explanation of the faltering of reflation
trades is the belief that growth is peaking while the Fed will
keep inflation in check," said Marija Vertimane, senior
strategist at State Street Global Markets.
"We disagree and (are) happy to buy the dip in cyclical
stocks," Vertimane said.
Goldman Sachs said a slip in commodity prices following the
Fed's comments created a buying opportunity.
In Europe, the pan-European STOXX index of shares
eased 0.75% to 455.88 points, just below Monday's record high of
460.51.
The MSCI world equity index was off 0.23% at
713.24 points after hitting a record high of 722.32 on Tuesday,
while Paris and Frankfurt were down 0.6% to 1%.
Stocks in London fell 1.18% after data showed
British retail sales fell unexpectedly last month as a lifting
of lockdown restrictions encouraged spending in restaurants
rather than shops.
The dollar was heading for its best week in nearly
nine months as investors priced in a sooner-than-expected ending
to extraordinary U.S. monetary stimulus.
Strength in the greenback pushed oil lower for a second
straight session, while spot gold remained down around 5% for
the week after the Fed dented the yellow metal's safe haven
appeal.
INFLATION GENIE
"What is pretty obvious is that the inflation genie is
starting to sneak out of the bottle, and that will be a major
driver of interest rates in the short to medium term," said
James McGlew, executive director of corporate stockbroking at
Argonaut in Perth.
In Europe, analysts were already asking if the Bank of
England, whose monetary policy committee meets next week, will
follow in the Fed's footsteps and adopt a more bullish tone on
the economy and what that would mean for the path of UK stimulus
and interest rates.
In Asia, MSCI's broadest index of Asia-Pacific shares
outside Japan was flat after falling for four
sessions. Chinese blue-chip A shares were also little
changed, along with Japan's Nikkei.
Gold prices, which plunged following the Fed comments, edged
higher but were still set for their worst week since March 2020.
Spot gold was last up 1.1% at $1,792 per ounce.
Higher expectations of inflation continued to lift
long-dated U.S. Treasury yields. Benchmark 10-year notes
yielded 1.4768%, off 0.034 from a close of 1.511% on
Thursday.
The dollar pulled back against the yen to 110.13, and
the euro was flat at $1.1909
Oil prices took a hit from the strong dollar as concerns
over demand and new Iranian supply also weighed.
Global benchmark Brent crude was down 0.7% at $72.53
a barrel after settling at its highest price since April 2019 on
Wednesday. U.S. West Texas Intermediate crude, which
touched its highest level since October 2018 on Wednesday, shed
0.66% to $70.57.
(Additional reporting by Thyagaraju Adinarayan, Andrew
Galbraith and Tom Westbrook Editing by Alexander Smith and Mark
Potter)
Tesco (TSCO)
