Money and Markets

Global shares slide as central bankers tackle surging inflation while Omicron spreads

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  • Global shares fell on Friday, as investors ditched riskier assets in favour of havens like gold.
  • Central bankers are ratcheting up their efforts to tackle surging inflation, as the Omicron variant spreads.
  • Gold hit a one-month high, lifted by investor demand for potential hedges against risk and inflation.
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Global stocks fell on Friday, coming under pressure from investor concern over the pickup in central-bank action to tackle surging inflation, at a time when the Omicron coronavirus variant threatens to derail the battle against Covid-19.

The MSCI All-World index was last down 0.2%, heading for its fifth weekly loss in six weeks. US stock futures traded lower, with those on the S&P 500 losing 0.4%. Dow Jones futures fell 0.1%, and Nasdaq 100 futures dropped 0.9%. 

This week, central bankers around the world have either raised interest rates, or cut back on economic stimulus — or signalled that they would do one or both — as rising consumer prices put pressure on growth. 

The Federal Reserve struck a more hawkish tone at its December meeting. It signalled on Wednesday it might need to raise US interest rates three times next year, and said it would wind down its asset-purchase programme at twice the current rate, bringing it to an end by March.

On Thursday, the Bank of England raised interest rates for the first time since 2018. The surprise move came just as the UK government introduced measures to tackle the spread of Omicron, against a backdrop of political instability. 

The European Central Bank said on Thursday it will cut its bond purchases in three months' time, as it struggles to contain inflation surging across the eurozone, while the Bank of Japan trimmed some economic stimulus on Friday. 

"It's been a pivotal week for global markets, and while trading volumes are set to abate as we head into the Christmas break, we think global central banks have provided investors with an important toolkit to position for what lies ahead in 2022," ING's Francesco Pesole said.

"If we were to find a common denominator of the G3 central bank messages this week, it is the centrality of inflation in the policy discussion," he said. 

In Europe, the major indices were all in the red, with the pan-continental Stoxx 600 down around 0.6%.

London's FTSE 100 was 0.2% higher. It was one of the strongest performers in the region, despite the crisis engulfing the governing Conservative Party, which lost a key local election.

With the BoE leading the central-bank hawks, the pound rose to its highest against the dollar since the start of December, having plumbed one-year lows just a week ago. Sterling was down 0.3% at $1.3285.

With inflation rhetoric running high, gold traded around its highest in a month on Friday, topping $1,800 an ounce. Even though rising interest rates and a stronger greenback undercut some of gold's appeal, its qualities as an inflation hedge and a haven in uncertain times are likely to attract inflows next year.

"Our view is that gold should indeed get back on track next year, as risk hedging will remain key," Rhona O'Connell, StoneX head of market analysis for EMEA and Asia, said in a note for Gain Capital. 

"Once rate hikes get underway it is possible that investment will unwind to a degree, but on balance it looks as if weak-handed holders are out of the market, the "known unknowns" are well-rehearsed, and any "unknown unknowns" are likely to be supportive," she said. 

Gold was last up 0.6% on the day at $1,808 an ounce, heading for a weekly gain of 1.3%, its largest in over a month.

Oil eased, heading for its first weekly loss since the end of November, driven lower by concern about the demand impact from Omicron. Brent crude and WTI futures were down 0.7%, at $73.77 and $71.14 a barrel, respectively.

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