World stocks perched near a record high on Friday after a week when most of the world’s biggest economies either raised rates, or signaled hikes, in a strong sign of confidence about global growth and inflation.
Investors turned their attention to a meeting of world finance chiefs in Germany starting Friday, where topics including economic reform, protectionism and exchange rates are expected to be on the agenda.
With Asian stocks on track for their best week since July, and European markets buoyant, Wall Street was set to open flat but close to all-time peaks earlier this month.
The U.S. Federal Reserve kicked things off this week with an interest rate hike on Wednesday, China followed with its own hike on Thursday, and then Britain and a European Central Bank policymaker hinted at higher rates.
The latter two came as somewhat of a surprise to markets with Britain’s economic future in doubt as it exits the European Union, and the fragile single currency area still being treated with trillions of euros of central bank money-printing.
The euro briefly hit a five-week high and the bloc’s bond yields and banking stocks climbed on Friday as comments from an ECB policymaker prompted investors to price in a high chance of a rate hike by year end.
“There’s been a change of heart at the Fed in the last few weeks, the Bank of England’s (Kristin) Forbes yesterday was flagging a rate hike and then we have the ECB talking about higher rates,” said Richard McGuire, head of rates strategy at Rabobank.
“So when you connect the dots it almost appears as if central banks can sense that sentiment is sufficiently positive for them to start normalizing monetary policy.”
It was the suggestion from the Austrian central bank governor that the ECB could raise rates before the end of its quantitative easing scheme – scheduled to run until December – that was the main focus during European trading.