Global shares recover from US inflation shock; oil heads for 3rd weekly loss

• US stock futures edged up, as a stronger dollar and weaker oil prices helped soothe some inflation fears.
• The dollar was trading at its highest since last July, buoyed by expectations for faster US rate hikes.

Global equities rose Friday, buoyed by a degree of relief over inflation and as strong corporate earnings helped offset some of the growing concern for the economy, while oil prices headed for another weekly loss.

Stock futures on the S&P 500 and the Nasdaq 100 were last up around 0.2%, suggesting a modestly higher open later in the day. Dow Jones futures were up 0.1%.

The S&P itself is on track for a 1% loss this week, for its biggest weekly decline since late September, while the Nasdaq faces a 2% drop.

Markets got a jolt Wednesday, after data showed the strongest pickup in US consumer inflation in 31 years in October. That hit government bonds, but boosted gold and the dollar.

The news sent the dollar to its highest since July last year against a basket of major currencies, as investors priced in the likelihood of a more rapid pace of US interest rate rises. Faster rate hikes would give the greenback the edge for investors seeking better yields.

But investors will still be able to rely on the patience of the Federal Reserve. The US central bank has started winding down some of its support for the economy, but has said it will tread carefully on rate hikes, according to UBS.

"Faced with an uncertain economic backdrop, we expect the Federal Reserve to err on the side of caution and remain patient on rate rises," Mark Haefele, UBS Global Wealth Management chief investment officer, said.

The dollar index was up around 0.1% on the day on Friday, but was set for a 1% weekly gain, which would mark its strongest weekly performance since mid-June.

The US government bond market reflected a similar investor outlook, as it reopened after closing for Veterans Day . Two-year yields - the most sensitive to interest rate and inflation expectations - were heading for their biggest weekly rise in over two years and were last near 20-month peaks at 0.536%.

"The central bank mantra of inflation being transitory is becoming harder and harder to swallow. The fact that the market keeps being surprised by inflation indicates that something is missing from market expectations," Nitesh Shah, WisdomTree Europe's head of commodities & macroeconomic research, said.

With the US currency holding strong, dollar-denominated commodities such as oil came under pressure. Brent crude and West Texas Intermediate futures were heading for a third-straight weekly fall, having touched multiyear highs earlier in November.

Evidence of rising inventories and OPEC cutting its 2021 demand forecast have weighed on prices. Brent crude futures were last down 1% at $81.98 a barrel, while WTI was down 1.3% at $80.50.

A global energy squeeze that sent prices for crude oil, natural gas, coal and refined products soaring in recent weeks - adding to inflation concerns - appears to be subsiding somewhat. Coal prices have fallen 40% in the past month, while European natural gas prices have lost 20%. Even crude oil has declined by around 1.5%.

Elsewhere, stocks in Europe traded cautiously against a backdrop of tense trade negotiations between the European Union and the UK. The Stoxx 600 was roughly flat on the day, while London's FTSE 100 fell 0.5%.

In Asia, China's "Singles' Day," the world's biggest online shopping event, did not prove to the boon to consumer spending many had hoped. Alibaba said Friday sales in its 11-day event grew just 8.5%, a record low, according to Reuters. The Shanghai Composite finished with a gain of 0.2%, lagging other regional benchmarks. Seoul's Kospi gained 1%, and Tokyo's Nikkei rose 1.1%.