Week of rate hikes has stocks on course for steepest slide since 2020

By Tom Westbrook

SINGAPORE (Reuters) - World stocks headed for their worst week since markets' pandemic meltdown in March 2020, as interest rate hikes in the United States and Britain and a surprise one in Switzerland set investors on edge about future economic growth.

The Bank of Japan was the only outlier in a week where money prices rose around the world, sticking with its strategy of pinning 10-year yields near zero on Friday.

The yen was down more than 1% to 133.88 per dollar in volatile trade. U.S. futures attempted a bounce and Chinese stocks gained, but that was set against a week of losses and worry that rate hikes are going to smother growth for years.

MSCI's broadest index of Asia-Pacific shares outside Japan fell to a five-week low, dragged by selling in Australia where the ASX 200 dropped 1.8%. Japan's Nikkei fell 1.7% and headed for a weekly drop of almost 7%.

S&P 500 futures rose 0.8% and Nasdaq 100 futures rose 1% but they are well underwater on the week. [.N]

EuroSTOXX 50 futures rose 1% and FTSE futures rose 0.5%.

"We are entering a tough phase of the regime shift, as the risks over economic growth add to the already hot inflationary backdrop," said Vincent Mortier, chief investment officer at Europe's biggest fund manager, Amundi.

"The current repricing is taking most of the overvaluation out of the market, but current levels are vulnerable to any deterioration in corporate fundamentals."

World stocks are down 5.7% for the week so far, on course for the steepest weekly percentage drop in more than two years.

ONE WAY

Bonds and currencies were jittery after a rollercoaster week. In recent sessions, the has dollar pulled back from a 20-year high, but it hasn't fallen far and looks set to end the week steady.

The Swiss franc's leap made for an additional drag this week since it is used as a funding currency and often changed for dollars before those are swapped for high yielders - meaning dollars get sold when that trade reverses.

The greenback was firm on Friday and apart from surging on the yen, it lifted about 0.3% to $1.0518 on the euro and rose about 0.5% to $0.7012 per Aussie. [FRX/]

"The path of least resistance is lower stocks and higher dollar," said Spectra Markets' Brent Donnelly. "The Fed don’t know where inflation is going, and neither do we."

As well as the Fed and the Swiss central bank, the Bank of England announced a 25 basis point rate rise this week. It was smaller than expected but prompted gilts to sell and sterling to rise on bets that future hikes would come thick and fast.

"If a central bank does not move aggressively, yields and risk price in more in the way of rate hikes down the road," said NatWest Markets' strategist John Briggs.

"Markets may just be continuously adjusting to an outlook for higher global policy rates ... as global central bank policy momentum is all one way."

Sterling rose 1.4% on Thursday and held gains into Friday as it heads for a steady week. Two-year gilts rose 18 basis points on Thursday to 2.143%. [GB/]

U.S. labour and housing data came in soft on Thursday, on the heels of disappointing retail sales figures, with the worries knocking the dollar and helping Treasuries.

Benchmark 10-year Treasury yields fell nearly 10 bps overnight but wobbled higher to 3.2313% during Asia's morning. Yields rise when prices fall. [US/]

Growth fears took oil on a brief trip lower before prices steadied. Brent crude futures were last at $119.70 a barrel. Gold held at $1,844 an ounce and bitcoin was kept under pressure at $20,700.