Canada’s main stock index fell for a second session on Friday, with the benchmark S&P/TSX Composite finishing below the 20,100 level dragged by losses in the heavyweight energy sector. Market sentiment was dominated by lingering concerns that rising inflation will prompt central banks to tighten monetary policy sooner and more abruptly than expected. Highlighting such a view, the Federal Reserve said it might raise interest rates as early as 2023, a faster pace than initially thought. As a result, TSX fell almost 1% this week to snap a four-week winning streak.

Gold came under heavy selling pressure this week, moving away from the $1,900 region to hit a near two-month low of $1,761 on Friday, and recording its worst week since March 2020 after shedding 6%. Such moves came in the wake of a surprisingly hawkish tone from the Fed, with the central bank sharply raising its forecasts for inflation this year and flagged two rate increases by the end of 2023, which, in turn, pushed the dollar to over two-month highs. Also, it looks like the price of gold and bond yields started to move in the same direction, changing the paradigm seen in the last couples of months.

All main European bourses dropped more than 1% on Friday, with energy and financials shares once again among the worst performers, while technology-related stocks resumed their slide. Concerns over rising inflationary pressures and the possibility of early tapering by the Federal Reserve offset hopes of a solid economic recovery in Europe. Also, investors digested recent data showing that Germany's producer inflation jumped in May to the highest level since 2008, while UK retail sales unexpectedly dropped over the same period. Domestically, the benchmark DAX posted its biggest one-day drop since May 19th to end the week on a sour note.

The dollar index broke above the 92.30 area on Friday, a level not seen in over two months, and notching its best week since March 2020 following a surprisingly hawkish tone from the Fed. Such market move marks a dramatic reversal from an over four-month low of 89.30 touched in late May. The US central bank has sharply raised its forecasts for inflation this year and flagged two rate increases by the end of 2023. The scale of the change in outlook came to benefit bullish investors who expect that Jay Powell and his rate-setting colleagues will need to think about scaling back quantitative easing to prevent the US economy from overheating. On top of that, comments from James Bullard, president of the St Louis Fed, about the prospects of an even earlier interest rate increase have supercharged existing upward momentum for the greenback.

WTI crude futures were trading around $72 a barrel on Friday, not far from an over two-year high of $73 per barrel hit on Wednesday, and recording its fourth consecutive week of gains. Investors were optimistic about an improved outlook for demand as the coronavirus vaccination campaign continues and economies reopen. On the supply side, OPEC+ recently agreed to keep to their plan to gradually ease supply curbs through July, signalling the ongoing strengthening of market fundamentals. Keeping a lid on prices was a stronger dollar, which acted as a headwind for dollar-denominated commodities.

Producer prices in Germany increased 7.2 percent year-on-year in May of 2021, the strongest growth since October of 2008, when prices rose strongly before the financial crisis, and above market expectations of 6.4 percent. Main upward pressure came from cost of intermediate products (10.7 percent), namely secondary raw material (69.9 percent), sawn and planed wood (38.4 percent) and metals (23.1 percent); and of energy (14.9 percent), namely natural gas (25.5 percent), after a sharp drop in prices in the spring 2020 when the coronavirus pandemic hit the economy hard. Prices of durable consumer goods increased by 1.7 percent and capital goods, such as machines and vehicles, by 1.2 percent. On the other hand, prices of non-durable consumer goods rose by 0.5 percent, with food increasing 0.3 percent, mainly due to vegetables oils and butter. On a monthly basis, producer prices advanced 1.5 percent, the most since July 2008, and beating market forecasts of a 0.7 percent rise.

Retail sales in the United Kingdom declined by 1.4 percent from a month earlier in May 2021, following a 9.2 percent increase in April when retail coronavirus-induced restrictions were eased and missing market expectations of a 1.6 percent advance. Receipts at food stores fell 5.7 percent, as the easing of hospitality restrictions had an impact on sales as people returned to eating and drinking at locations such as restaurants and bars; and on-line trade dropped by 4.2 percent, following the reopening of non-essential retail. On the other hand, non-food stores reported a 2.3 percent rise, with household goods stores, such as hardware and furniture stores, and “other” non-food stores reporting the largest growth of 9.0 percent and 7.7 percent, respectively. Automotive fuel sales increased by 6.2 percent, as people continued to increase their amount of travel. Still, total retail sales were up 9.1 percent when compared with their pre-pandemic February 2020 levels.

The main Sao Paulo stock index, or Bovespa, ended virtually flat on Friday and finished the week on a sour note, as investors continued to digest the Federal Reserve's initial steps toward removing its massively accommodative policy. The US central bank drastically raised inflation forecasts and shifted up the timeline for a rate hike. Domestically, however, traders cheered the approval by 42 votes to 37 in the Brazilian Senate of the Provisional Measure dealing with the privatization of state-owned Eletrobras.

The so-called Treasury yield curve flattened at the end of a volatile week, as investors continued to digest the US Federal Reserve’s comments that it expects to raise rates as soon as 2023, but it is in no hurry to pare emergency bond-buying. The yield on the benchmark 10-year Treasury yield settled around 1.5%, after jumping as much as 10 basis points to 1.59% on Wednesday and dropping to as low as 1.47% on Thursday. At the same time, two-year yields were last 0.24%, the highest level since April 2020. The retreat in long-dated bonds shows that investors are less optimistic about the economic growth, while the surge in short-dated yields, which are the most sensitive to interest changes, reflects that an interest rate hike is widely expected. Earlier this week, key economic data showed a larger than expected decline in US retail trade and the first increase in initial jobless claims in seven weeks.