U.S. New Home Sales for August; Kansas City Southern special meeting of shareholders to vote on acquisition by Canadian National Railway.
Stock futures wavered and bond yields ticked up to multi-month highs, as uncertainty lingered about the future of heavily indebted property giant China Evergrande Group.
"There has been a growing feeling that there is a pullback waiting," said Seema Shah, chief strategist at Principal Global Investors. "The market is so vulnerable to any kind of shock right now given growth is slowing and valuations are looking stretched."
Markets have been whipsawed this week by fears that the possible collapse of Evergrande could spill over into global markets and add to an already darkening outlook for global growth. Evergrande inched closer to a potential default Friday as a deadline on a key interest payment to its U.S. dollar bondholders passed without any announcement.
"It is one of the largest companies in the second largest economy in the world and if something pulls down Chinese growth it is going to pull down global growth," said Ms. Shah.
The company's shares slumped over 12% in Hong Kong as the Thursday deadline for the $83.5 million coupon payment passed. Evergrande's shares have fallen over 80% this year.
In U.S. off hours trading, Meredith Corp. surged 19% off hours after The Wall Street Journal reported the People Magazine publisher was in talks to be acquired by Barry Diller's IAC/InterActiveCorp.
Shares of Nike fell 4% in premarket trading after the sportswear giant lowered revenue guidance, citing supply-chain disruptions in Asia. Rival Adidas slipped 3% in European trading. Shares in warehouse grocery chain Costco ticked up 0.8% after the warehouse grocery giant reported quarterly sales.
The DXY dollar index fell, erasing some of the gains in the wake of Wednesday's U.S. Federal Reserve announcement that took it to a one-month high, but investors should return to buy the currency due to prospects of tighter monetary policy, ING said.
"We are still inclined to think markets will buy the dips in the dollar given the reinforced backdrop of policy normalisation in the U.S.," it said.
The Fed said it could start tapering asset purchases as early as November while interest rates could rise by the end of next year. ING said markets for now seem reluctant to "trust" the Fed's interest-rate projections and may need more evidence from U.S. data.
The pound traded steady, failing to build on Thursday's gains after a Bank of England policy statement suggested the central bank was moving closer to tightening monetary policy, and MUFG said it could reverse these gains due to near-term risks to the U.K. economy.
These include reduced pandemic-related support, surging gas prices and continuing supply bottlenecks. The hit to real incomes from surging utility bills just as an increase to benefit payments added during the pandemic is taken away "could undermine consumer confidence and weaken consumer spending," said MUFG's Derek Halpenny.
Sterling advanced nearly 1% versus the dollar Thursday "but near-term elevated risks leave us more wary of the move reversing," he said.
Markets were contending with a rise in government bond yields, after several central banks-including the Fed-this week signaled they were on the path toward removing pandemic-era stimulus measures. The yield on the benchmark 10-Year U.S. Treasury note rose to 1.437% Friday, from 1.408% Thursday, hitting its highest level since July.
OFI Asset Management expects a gradual rise in U.S. and eurozone bond yields by year-end as central banks intend to gradually remove some monetary stimulus, said Jean-Marie Mercadal, head of investment strategies.
OFI AM's year-end targets for the 10-year U.S. Treasury and German Bund yields are 1.75% and -0.20%, respectively, with the expected increases not triggering any major price fluctuations in markets.
Markets seem to have priced in the Fed's intention to scale back asset purchases, he said.
The European Central Bank also decided in September to continue asset purchases at a "moderately lower" level in the coming quarter compared with 2Q and 3Q.
Oil prices rose, with both benchmarks on course for weekly gains. Brent's trading close to its October 2018 high, with UBS's Giovanni Staunovo pointing to the supply disruptions and recovering oil demand that have caused volatility in the market since August.
On top of Hurricane Ida, maintenance work in Kazakhstan, as well as outages in Nigeria, Mexico, and Libya have all contributed to rising prices in recent weeks, he added, forecasting a Brent price of $80 a barrel for the end of the month.
Gold rebounded after a steep fall on Thursday that was prompted by rising bond yields and signs that global central banks could soon hike rates to tame inflation. The precious metal slumped as low as $1,739.70 in the previous session as U.S. treasury yields rose to their highest level since July.
"The market is showing a little bit of a taper tantrum," says Seema Shah, chief strategist at Principal Global Investors, of the rising bond yields. Signs that global central banks were moving to remove pandemic-era stimulus measures are behind the move in bond markets, she said.
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China Evergrande Never Got Auditor Warning Despite Big Debt Load
Last year as China Evergrande Group's stock and bond prices seesawed, it offered deep discounts to keep sales growing during the pandemic and the government effectively said it had borrowed too much.
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