London: Global stocks, oil and the dollar eased on Friday with investors took a cautious stance before Italy’s referendum on constitutional reform and US payrolls data later in the day, which may cement the case for a Federal Reserve rate increase. Strong economic data from the US, including upbeat manufacturing activity and construction spending, have bolstered the view that the Fed will tighten monetary policy faster than expected to keep inflationary pressures in check.
US employers probably hired more people in November amid growing confidence in the economy, making it almost certain that the Federal Reserve will raise interest rates later this month. Yields for 10-year US Treasuries eased after reaching an 18-month high of 2.492% overnight.
The dollar was on course for its first weekly decline in four weeks against the euro and a basket of currencies as investors trimmed bets following recent gains. European shares fell more than 1%, led by industrial and financial stocks. They have gained the most since Donald Trump won the US presidential election last month.
Uncertainty over the outcome and market impact of this weekend’s referendum in Italy has caused choppy trading in the country’s banking stocks and government bonds. Investors appear to be having some last-minute reservations. The gap between Italian and German bond yields—which shot to a 2 1/2-year high of 188 basis points (bps) last week—fell to 167 bps on Friday.
“I suspect on Monday it will be very difficult to have a definitive opinion on what could be the future government in Italy and the appetite for further reform,” said Franck Dixmier, global head of fixed income at AllianzGI, adding that the fund was ‘short’ Italian bonds. In commodity markets, oil prices eased from the 16-month high they reached after the Organization of Petroleum Exporting Countries agreed to cut output for the first time since 2008. Russia also agreed to reduce production for the first time in 15 years.
Brent crude futures eased 0.26% to $53.80 a barrel. Reuters