Global shares struggle as investors weigh up chances of a mega Fed rate hike and downbeat earnings

• Global shares wavered as investors mulled the chances of a supersized rate hike from the Federal Reserve.
• Consumer spending data later could give a read on how resilient economic activity is.

Global shares sagged on Friday, weighed down by the prospect that the Federal Reserve could raise rates by the most in over 30 years to counter surging inflation, while a downbeat read of the Chinese economy and gloomy earnings added to the pressure on investor sentiment.

Stocks have been battered this week by mounting evidence that inflation could damage global growth, prompting central banks to deliver supersized rate hikes to quell price pressures. China's zero-COVID policy, which has added to the pessimism, led to annual economic growth of just 0.4% year-on-year in the second quarter of this year, missing market expectations for a rise of 1.0%, and down from 4.8% growth in the first quarter.

S&P 500, Dow Jones and Nasdaq 100 futures edged up around 0.2% in European trading, while the MSCI All World Index eased 0.1%, heading for a 3.2% fall this week.

In Europe, the Stoxx 600 traded up 0.85%, but was on course to post a 7% drop on the week, while the MSCI Asia ex-Japan index fell 0.9%, weighed down by losses in Chinese blue chips after Friday's dismal GDP figures.

The dollar, which has hit new 20-year highs against a basket of major currencies this month, was set for its third consecutive weekly gain, fueled by a mixture of safe-haven buying as investors fret about the prospect of recession and an expectation for juicier returns on US assets as the Fed ramps up rates.

In earnings, JPMorgan and Morgan Stanley kicked off results season on a glum note. Both banks missed estimates for the first time since 2020 in a sign the bumper gains from pandemic-era market activity may be drying up, and the drag of a strong dollar is making itself felt.

"Even though the US is a more domestic focused economy and stock market, the costs of dollar strength are clear. S&P 500 index earnings are being cut around 5% by current dollar strength, led by the hard-hit tech sector which generates over 60% of its sales abroad," Ben Laidler, eToro global markets strategist, said.

Wells Fargo and Citigroup report on Friday, while Bank of America and Goldman Sachs are due next week.

Data on Friday will offer a key litmus test of how the consumer is holding up in an environment where inflation is running at 41-year highs and mortgage rates have soared to their highest since 2008. Retail sales data for June is expected to show consumer spending rose by 0.9%, a reversal from May's 0.3% contraction, according to data from Bloomberg, while a read on sentiment is expected to show consumer confidence hitting another record low in early July.

With inflation running at 9.1%, investors are attaching a growing chance that the Fed could raise rates by as much as a full percentage point when it meets later this month — something that hasn't happened since late 1989. Interest rate futures show a near-50% chance of such an increase, a possibility that was negligible prior to Wednesday's consumer inflation reading for June.

"Just as the June UMich consumer inflation survey spooked the Fed into a 75bps hike last month, traders are betting that yesterday's 9.1% CPI print will spook the Fed into another, even more supersized hike this month. Right now, that seems like a decent bet," Michael Brown, chief strategist at Caxton FX, said.

Meanwhile, oil hovered below $100 a barrel, having lost 7.6% in value this week, in its fifth straight weekly decline — its longest losing streak this year. Brent crude futures were last down 0.2% at $99.16 a barrel, while WTI crude was down 0.3% at $95.47 a barrel.

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