Global stock markets, except for Asia, ended the week higher on Friday, as investors remained hopeful that the US Federal Reserve would reconsider its plans to implement more interest rate hikes.
Government data this week showed that US retail sales posted a surprisingly strong performance, and producer price data suggested that inflation, which has been at 40-year highs, has peaked and would allow wiggle room for lower interest rates.
But senior Fed officials were quick to douse water on those hopes.
St Louis Fed president James Bullard said rates needed to rise to between 5 per cent and 5.25 per cent to fight inflation, while Boston Fed president Susan Collins said there was little evidence to support holding off on more aggressive rate hikes.
Michael Barr, the Fed's vice chairman of supervision, said this week that inflation was “far too high”.
These remarks were supported by their counterparts in Europe, with three senior policymakers — European Central Bank president Christine Lagarde, Bundesbank president Joachim Nagel and Dutch Central Bank governor Klaas Knot — all saying the ECB must increase rates to tackle inflation.
On Wall Street, indices settled higher despite choppy trade on Friday: the Dow Jones Industrial Average closed up 0.6 per cent and the S&P 500 rose 0.5 per cent, while the tech-heavy Nasdaq Composite ended flat.
For the week, the exchanges were down, however, with the Dow dropping 0.1 per cent, the S&P 500 declining 0.7 per cent and the Nasdaq shedding 1.6 per cent.
Losses have been heavier year-to-date, with the Dow is off 7.1 per cent, the S&P 500 down 16.8 per cent and the Nasdaq diving 28.8 per cent.
The tepid performance of the US stock market can be attributed to "traders [who] had some reality checks with respect to their anticipations of the Fed's monetary policy", said Naeem Aslam, chief market analyst at AvaTrade.
The US Central Bank since March has raised its benchmark interest rate from near zero to a range of 3.75 per cent to 4 per cent, including four straight increases of three quarters of a percentage point, the latest being on November 2.
In Europe, London's FTSE 100 settled 0.5 per cent higher, boosted by UK retail sales data, which swung to a 0.6 gain in October following a 1.5 per cent drop in September.
Still, it remained below pre-Covid levels as stubbornly high inflation — which hit a new 40-year high of 11.1 per cent as energy costs soared — continues to hit the spending power of consumers.
"Higher energy bills will boost inflation, and that could be negative for the pound, if the Bank of England [BoE] doesn’t compensate with higher interest rate hikes," said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.
"And the BoE said last time that it won’t go crazy hawkish to avoid a complete economic meltdown in the UK."
In other major European bourses, Paris's CAC 40 closed up 1 per cent and Frankfurt's Dax rose 1.2 per cent.
Stock markets in Asia were a mixed bag, however, with the biggest exchanges ending the week lower as investors remained cautious over the Fed's next moves.
They were particularly concerned about the messages from several Fed officials, who said more interest rate hikes would be needed to tame inflation, further fanning the flames of a possible recession in the world's biggest economy.
"Investors seem continually surprised by the Fed merely repeating its mantra. Rates are likely to continue rising ... and may well stay higher until such time as a sustained slowdown in inflation is evident," said Richard Hunter, an analyst at UK-based Interactive Investor.
Tokyo's Nikkei 225 ended 0.1 per cent lower, Hong Kong's Hang Seng Index declined 0.3 per cent and the Shanghai Composite shed 0.6 per cent.
In commodities, oil prices settled lower on Friday and posted a weekly decline as rising Covid-19 cases in China, the world's largest crude importer, affected the outlook for oil demand.
Brent shed 2.41 per cent at $87.62 a barrel at the close of trading, while West Texas Intermediate declined 1.91 per cent to $80.08.
Gold, meanwhile, also ended the week lower as investors were concerned on more Fed rate hikes. Gold for December delivery settled about 0.7 per cent lower, or $12.80, to $1,763 an ounce. US gold dropped 0.5 per cent to $1,754.40 an ounce.