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LONDON, April 22 (Reuters) – World stocks fell to five-week lows and bond yields rose on Friday as investors fretted about rate hikes in the United States and the euro zone, while the yuan struck a seven-month low as lockdowns in Shanghai hit China’s growth prospects.

U.S. Federal Reserve Chairman Jerome Powell said on Thursday that a half-point interest rate increase would be “on the table” when the Fed meets in May, adding it would be appropriate to “be moving a little more quickly”.

His remarks strengthened market expectations of at least another half-percentage-point rate hike next month, and Nomura now expects 75-basis-point hikes at the Fed’s June and July meetings, which would be the biggest since 1994.

European Central Bank officials said on Thursday that the central bank might start hiking euro zone rates as early as July, while Bank of England interest rate-setter Catherine Mann said that borrowing costs would probably have to rise further.

Euro zone money markets now fully price in a 25 basis point rate hike by July.

“The Fed, the ECB and the Bank of England were pushing hawkish commentaries on the markets and markets have reacted,” said Monica Defend, head of Amundi Institute, though she added:

“For the euro area, we are more sceptical on the fragility of the economic cycle, there is big potential for a recession to take place in Germany and Italy.”

The euro zone is feeling the impact of the war in Ukraine.

The mayor of Mariupol made a new appeal on Friday for the “full evacuation” of the southern Ukrainian city which President Vladimir Putin says is now controlled by Russian forces.

Markets are also watching out for euro zone and U.S. flash purchasing managers’ data for April, with French data showing business activity grew at the fastest pace in more than four years, helped by fewer COVID-19 restrictions.

MSCI’s world equities index .MIWD00000PUS was down 0.41% at its lowest since mid-March, and was heading for a 0.7% drop on the week.

S&P futures were 0.18% softer after Wall Street indexes fell on Thursday, with the S&P 500 .SPX down 1.5% and the Nasdaq down 2%.

European stocks dropped 1.06%, with France’s CAC 40 down 1.39% ahead of Sunday’s presidential run-off vote. Britain’s FTSE fell 0.52%.

Selling pressure persisted in bond markets, driving five-year U.S. Treasury yields to 3.049% and two-year yields to 2.7620%, both at their highest since late 2018.

German two-year yields rose to 0.211%, their highest since early 2014.

In currency markets, the yuan hit a seven-month low and was on course for its worst week since 2019, as lockdowns in Shanghai take a bite out of growth.

Analysts at HSBC say a comprehensive easing package on all fronts, both monetary and fiscal, from Beijing is needed, including loosening measures in the property sector, which has been hit hard by restrictions on access to credit.

The dollar was down 0.25% against the yen at 128 after talk of joint Japan-U.S. FX intervention, though the euro fell 0.29% against the dollar to $1.0805, giving up Thursday’s bounce as nerves about Sunday’s French presidential election creep in.

The U.S. dollar index rose 0.26% towards recent two-year highs =USD.

Sterling fell to its lowest since late 2020 against the dollar, after British retail sales dropped in March by more than expected.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1% to a five-week low, weighed down by a 1.6% loss for Australia’s resource-heavy index and a 0.86% drop in South Korean shares.

Japan’s Nikkei declined 1.63%.

Oil prices weakened, burdened by the prospect of interest rate hikes, weaker global growth and COVID-19 lockdowns in China hurting demand, even as the European Union weighed a ban on Russian oil.

Brent crude futures were down 55 cents, or 0.57%, at $107.86 a barrel, while U.S. West Texas Intermediate (WTI) crude futures declined 50 cents, or 0.48%, to $103.30.

Spot gold was last down 0.09% to $1,949.90 per ounce.

(Additional reporting by Tom Westbrook in Singapore; Editing by Edwina Gibbs, Christian Schmollinger and Tomasz Janowski)

LONDON, April 22 (Reuters) – Oil slipped on Friday, burdened by the prospect of weaker global growth, higher interest rate and COVID-19 lockdowns in China hurting demand even as the European Union considered a ban on Russian oil that would further tighten supply.

The International Monetary Fund this week cut its global economic growth forecast while the U.S. Federal Reserve Chair on Thursday said that a half-point increase to interest rates “will be on the table” at the next Fed policy meeting in May.

Brent crude LCOc1 was down 76 cents, or 0.7%, at $107.57 a barrel by 0810 GMT. U.S. West Texas Intermediate (WTI) crude declined 32 cents, or 0.3%, to $103.47.

“At this stage, fears over China’s growth and over-tightening by the Fed, capping U.S. growth, seem to be balancing out concerns that Europe will soon widen sanctions on Russian energy imports,” said Jeffrey Halley, analyst at brokerage.

The outlook for demand in China, the world’s biggest oil importer, continues to weigh. Shanghai announced a new round of measures including daily coronavirus testing from Friday, adding to strict measures to curb the latest outbreaks.

Brent hit $139 a barrel last month, its highest since 2008, but both oil benchmarks were heading for weekly declines of more than 3% this week.

Ongoing support is provided by supply tightness after disruptions in Libya, which is losing 550,000 barrels per day (bpd) of output, and supply could be squeezed further if the European Union imposes an embargo on Russian oil.

An EU source told Reuters this week the European Commission is working to speed up availability of alternative energy supplies to try to cut the cost of banning Russian oil and persuade reluctant nations to accept the measure.

“An EU boycott of Russian energy would inevitably lead to higher energy prices, at least in the immediate term,” said Stephen Brennock of oil broker PVM. “It looks to be a case of if, not when.”

(Additional reporting by Sonali Paul in Melbourne and Isabel Kua in Singapore Editing by David Goodman)

April 22 (Reuters) – Morgan Stanley raised its third quarter price forecast for Brent by $10 per barrel to $130 citing a “greater deficit” this year due to lower supply from Russia and Iran, which is likely to outweigh short-term demand headwinds.

“The oil market is contending with negative GDP revisions, the effects of China’s zero-COVID policy and a particularly large release from the Strategic Petroleum Reserves,” Morgan Stanley said in a note dated April 21.

“Our forecasts still point to declining inventories and shrinking spare capacity as the year unfolds,” it added.

Morgan Stanley sees a deficit of about 1 million barrels per day (bpd) persisting through 2022 as supply issues are likely to be exacerbated by deteriorating buying interest in Russian oil and lack of progress in reviving the Iran nuclear deal.

The bank also trimmed its oil demand growth forecast to 2.7 million from 3.4 million bpd.

Brent crude futures slipped on Friday pressured by prospects of weaker global growth, higher interest rates and COVID-19 lockdowns in China even as the European Union considered a ban on Russian oil which would further tighten supply.

(Reporting by Roshan Abraham and Eileen Soreng in Bengaluru; editing by Jason Neely)

April 22 (Reuters) – Gold prices fell on Friday as the prospect of aggressive interest rate hikes boosted U.S. Treasury yields and the dollar, denting zero-yielding bullion’s appeal and setting prices on track for their first weekly decline in three.

Spot gold was down 0.44% to $1,942.91 per ounce at 1005 GMT. U.S. gold futures eased 0.2% to $1,945.20.

“We are dealing with the global economy where interest rate hike expectations continue to move up, as a result yields are moving higher and the dollar is trading stronger, all potential strong challenges to gold at this point,” Saxo Bank analyst Ole Hansen said.

However, “gold is holding within the established range… The reason being the market is worried that these very strong expectations for rate hikes in the U.S. may lead to a bigger than expected economic slowdown.”

U.S. Federal Reserve Chairman Jerome Powell said on Thursday a half-point interest rate increase “will be on the table” when the central bank meets in May and that it would be appropriate to “be moving a little more quickly.”

Benchmark U.S. 10-year Treasury yields extended gains on the Fed’s hawkish tone on tightening policy in its effort to tame soaring inflation. Meanwhile the dollar index =USD scaled a fresh peak since March 2020.

Gold is highly sensitive to rising U.S. interest rates and higher yields, which increase the opportunity cost of holding bullion, while boosting the dollar, in which it is priced.

Gold is down about 1.3% so far this week. Prices rose to near the key mark of $2,000 per ounce on Monday on safe-haven demand and mounting worries over inflation, only to pull back and hit a two-week low on Thursday.

Spot silver fell 1.8% to $24.19 per ounce and was headed for its biggest weekly fall since late January.

Platinum slipped 1.3% to $955.28 per ounce and palladium was 1.4% lower at $2,388.21.

(Reporting by Eileen Soreng in Bengaluru; Editing by Mark Potter)