World edge lower, US yields off lows ahead of fresh data

LONDON: Global shares edged lower while US Treasury yields hovered near multi-month lows on Friday, with markets looking to US consumer data as the next test of the Federal Reserve's dovish rates outlook.

Oil markets were on course for their biggest weekly drop since at least May as traders bet supply from OPEC producers could rise to meet an expected increase in demand as economies recover from the coronavirus pandemic.

How quickly that happens, though, is far from certain, with a resurgence in the infection rate across a number of countries, particularly in Africa and parts of Asia as the Delta variant continues to take hold.

MSCI's broadest gauge of global shares was down 0.1% in European trading, broadly unchanged on the week, as European markets gave up some of their earlier gains, with Britain's FTSE 100 up 0.2%.

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That helped counter overnight weakness in Asia where MSCI's broadest index of Asia-Pacific shares outside Japan lost 0.4%, weighed down by a 1.1% drop in China's blue-chip index and a 0.8% fall for Taiwanese shares.

The Asian weakness was in large part driven by lacklustre earnings from TSMC, Asia's biggest firm by market capitalisation outside China, which saw its shares fall 4.1%.

Looking ahead, US stock futures pointed to a marginally higher open, up around 0.2%.

Markets continue to be supported by ultra-easy monetary policy from most of the world's leading central banks, yet are skittish given the coronavirus threat and concern policymaker support could be yanked too early if inflation fears rise.

Against that backdrop, all eyes continue to be trained on the US Federal Reserve for any signs that its dovish policy could be about to change.

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This week, Fed Chair Jerome Powell reiterated that rising inflation is likely to be transitory and the US central bank would continue to support the economy.

Sparking a note of caution, US Treasury Secretary Janet Yellen said inflation risks needed to be watched "very, very carefully" after data this week showed the biggest jump in 13 years.

Yet with policymakers being guided by the data, all eyes will turn later on Friday to the latest set of US retail sales data at 1230 GMT for fresh clues to the strength of the recovery, with the June print expected to show a rise after falling in May.

Ahead of that, yields on US 10-year Treasuries edged off lows to trade up 2.3 basis points at 1.322%, albeit still near the five-month low of 1.250% touched last week.

Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, adviser to many of the world's super-rich, said he expected rates to continue to move higher as confidence in the economic recovery took hold.

"We believe the downward trend in yields will reverse as confidence in the economic recovery mounts. However, we see a rebound in 10-year yields to 2% by year-end as consistent with a continued rally in equities."

In Europe, Germany's 10-year yield fell to a new three-month low in cautious trade ahead of next week's European Central Bank meeting.

German 10-year yield at 3-month low as bonds retain support

In foreign exchange, major currencies were little changed on the day but the dollar headed for its best weekly gain in about a month. It was last up 0.1% against a basket of major peers.

"Delta variants are raging in countries where vaccination is limited. In a way, the dollar and US assets appear to be bought as a hedge against that," said Arihiro Nagata, general manager of global investment at Sumitomo Mitsui Bank.

Gold on the other hand reached a one-month high of $1,834.3 per ounce before pulling back to trade down 0.6% at $1,822.5, yet remains on course for a fourth straight weekly gain on the back of the dovish Fed.

Oil prices were heading for their biggest weekly drop since at least May as expectations of more supplies spooked investors, with OPEC likely to add output to meet a potential revival in demand as more countries recover from the pandemic.

After trading lower earlier in the session, US crude futures were last up 0.2% at $71.77 per barrel, while Brent futures were up 0.1% at $73.53 per barrel.