Markets ended the week on a negative note as U.S. equities faded in the final minutes of trading and Treasuries fell on Friday following declines sparked by the Federal Reserve’s plan for aggressive monetary-policy tightening.

The S&P 500 slid, bringing its weekly decline to 1.3 per cent, while the tech-heavy Nasdaq 100 also fell, adding to its worst weekly performance since mid-March. Meanwhile, Treasury losses deepened with investors closely watching for a reversal in curve steepening seen in the wake of Wednesday’s Fed minutes, which outlined plans to reduce the balance sheet alongside interest-rate hikes.

“The Fed aims to tamp down inflation without igniting a recession; investors are skeptical, but we expect inflation will moderate later this year, bringing the doves back,” Ed Yardeni, president of Yardeni Research, said in a note.

The U.S. dollar narrowly strengthen against peers for a seventh day, hovering near its highest level since July 2020. Oil was also higher after three days of losses stoked by plans to release millions of barrels of crude from strategic reserves and China’s demand-sapping virus outbreak. 

The Stoxx Europe 600 index climbed 1.3 per cent as investors took advantage of beaten-down stock valuations. Banks outperformed, with Banco BPM SpA surging after Credit Agricole SA bought a 9.2 per cent stake in the Italian lender.

Global equities are nursing losses for the week as markets grapple with the Fed’s campaign against elevated price pressures, Russia’s grinding war in Ukraine and China’s Covid travails. The lockdown in Shanghai -- which recorded more than 21,000 new daily virus cases -- has become one of President Xi Jinping’s biggest challenges. Expectations are growing that China will take steps to support its economy.

“The outlook is bleaker and bleaker as investors and economists continue to ratchet down their growth expectations,” Bryce Doty, senior portfolio manager at Sit Investment Associates, said by phone. “The headwinds continued to build. So there’s this nervousness that is also building. It’s like reading the weather report -- reading that there’s a pending storm even though it’s bright and sunny today.”

YIELD CURVE

The steepening in the Treasury yield curve contrasts with the flattening and inversions that have vexed markets this year. The two-year rate topped the 10-year last week for the first time since 2019, a possible warning of recession.

“We’re seeing a tactical re-steepening right now but the curve is going to continue to flatten,” Kelsey Berro, fixed income portfolio manager at JPMorgan Asset Management, said on Bloomberg Television. “That’s because the Fed has told us, we’d like to get to neutral expeditiously. On top of that, they may need to tighten beyond neutral. Front-end yields can still go higher.”

Meanwhile, U.S. officials warned the war in Ukraine may last for weeks or even years. European Union countries agreed to ban coal imports from Russia, the first time the bloc’s sanctions have targeted Moscow’s crucial energy revenues. Global food prices are surging at the fastest pace ever as the war in Ukraine chokes crop supplies, piling more inflationary pain on consumers and worsening a global hunger crisis.

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.3 per cent as of 4:05 p.m. New York time
• The Nasdaq 100 fell 1.4 per cent
• The Dow Jones Industrial Average rose 0.4 per cent
• The MSCI World index was little changed

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at US$1.0877
• The British pound fell 0.3 per cent to US$1.3034
• The Japanese yen fell 0.3 per cent to 124.34 per dollar

Bonds

• The yield on 10-year Treasuries advanced five basis points to 2.70 per cent
• Germany’s 10-year yield advanced three basis points to 0.71 per cent
• Britain’s 10-year yield advanced two basis points to 1.75 per cent

Commodities

• West Texas Intermediate crude rose 1.9 per cent to US$97.85 a barrel
• Gold futures rose 0.5 per cent to US$1,948.40 an ounce