By Geoffrey Smith
Investing.com -- Global markets are turning nasty at the end of a week of central bank interest rate hikes, with the European Central Bank's hawkish tone on Thursday responsible for the latest leg down. The news out of China is no better, with anecdotal reports of a wave of COVID-related deaths in Beijing pointing to a difficult couple of months ahead. U.S. stocks are on course for their second straight weekly loss after weak retail sales data and factory surveys on Thursday, despite a strong showing from Adobe (NASDAQ:ADBE) after the bell. Accenture (NYSE:ACN) and Darden Restaurants (NYSE:DRI) are due to report early. Crypto prices come under pressure amid fresh doubts as to the reliability of Binance's reserves data, and the Kremlin has blinked first, failing to go through with a threat to stop oil supplies to those who enforce the G7 price cap on its oil exports. Here's what you need to know in financial markets on Friday, 16th December.
1. Global markets take another leg down on ECB hawkishness
Global markets are in a funk at the end of a week in which central banks again signaled that their take on the balance of risks between growth and inflation is very different from that of markets.
Eurozone bond markets have slumped since the European Central Bank struck a much more hawkish tone than expected at Thursday’s governing council meeting, with short-dated German notes – the region’s benchmark risk-free asset – having their biggest daily move since 2008.
It’s rare for the ECB to move markets more than the Federal Reserve, but the guidance from President Christine Lagarde indicated a much greater willingness to tolerate a recession than markets have been accustomed to hearing from a central bank that has erred on the side of dovishness for the last decade rather than risk breaking up of the single currency project.
2. China epidemic worsens
Chinese stocks closed the week lower as reports of a rising death toll in Beijing from COVID-19 circulated in local and international media.
Anecdotal real-time data point to sharp drops in the use of roads and public transport as fear of the virus constrains activity in much the same way as official lockdowns. The development is a fresh blow to an economy that needs consumer demand to mitigate the chilling effect of a chronic real-estate crisis. It suggests that consumer-facing indicators, such as retail sales, are likely to fall further before herd immunity can kick in.
Chinese stock indices fell as much as 1%, while the offshore yuan edged up to 6.9743 against the dollar.
3. Stocks set to open lower; Adobe the standout performer
U.S. stock markets are set to open markedly lower again as the market reflects on a week in which central banks have acted to tighten financial conditions significantly, despite signs of a broad economic slowdown. Weak U.S. retail sales and manufacturing surveys released on Thursday dealt fresh blows to hopes of the U.S. economy achieving a soft landing next year.
By 06:35 ET (11:35 GMT), Dow Jones futures were down 356 points, or 1.1%, while S&P 500 futures were down by a similar amount and Nasdaq 100 futures were performing slightly better, down 0.7%. The three main cash indices had lost between 2.3% and 3.2% on Thursday and are set for a weekly loss of around 2%.
Stocks likely to be in focus later include Adobe, which opened up 4% in premarket after strong results published late on Thursday. Accenture may extend the streak of strong business software-related earnings when it reports early, while Darden Restaurants' numbers risk being hurt by the squeeze on consumer incomes from high inflation.
4. Crypto weakens as Binance reserves face fresh doubts
Cryptocurrency prices fell after new developments cast fresh doubt on the reliability of reserve figures provided by Binance, the world's largest exchange.
Tax and audit firm Mazars, which published a controversial attestation about Binance's reserves last week, has now paused all work with the crypto sector. Its other clients include KuCoin and Crypto.com.
The news removes one of the key supports to the repeated claims by Binance founder and CEO Changpeng Zhao that the exchange manages its customer deposits properly - a concern among the crypto community that has flared up since the collapse of rival exchange FTX.
Bitcoin fell over 3%, while Ether fell 6% in response and other alt-coins followed the trend.
5. Russia blinks in oil price cap standoff
Crude oil prices fell further, as the scale of demand destruction in China due to fear of COVID-19 became increasingly clear.
Another factor weighing on prices was a report by the Financial Times that proved that Russia was selling crude to India despite the fact that Indian buyers were complying with the G7-imposed price cap.
The Kremlin has repeatedly said it won’t sell to countries that follow the G7’s initiative, and the report suggests that it won’t be able to follow through on threats to restrict output, as the cost of financing the war in Ukraine continues to mount. Separately on Friday, the Russian central bank warned that the Kremlin’s mobilization of another 300,000 earlier in the fall had worsened an already-existing shortage of skilled labor, posing a threat to future growth.