(Adds oil, gold settlement prices)
* MSCI World index slides despite strong U.S. retail sales
* U.S. T-bill yields pare early rise; gold down
* Oil heads for biggest weekly drop since at least May
NEW YORK/LONDON, July 16 (Reuters) - Global stock markets
slid on Friday as investors grapple with signs of rising
inflation and a surge in coronavirus cases while the dollar
edged higher after upbeat U.S. retail sales data reaffirmed the
economy accelerated in the second quarter.
The Commerce Department said retail sales rose 0.6% in June,
contrary to an expected decline, adding weight to those who say
inflation will run faster than the Federal Reserve's forecast
and force interest rates to rise sooner than its projections.
Yet bond yields did not jump and pared initial gains, with
the benchmark 10-year U.S. Treasury note trading at
1.3053%, or 0.8 basis points higher on the day.
Investors turned risk-averse with the equity markets in
decline, while defensive stocks gained both on Wall Street and
MSCI's all-country world index, a broad
gauge of global shares, fell 0.4% to 720.73. In Europe, the pan
FTSEurofirst 300 index closed down 0.38% at 1,754.64.
European defensive sectors rose, with real estate,
utilities and healthcare rising between 0.5% and
1% as worries about the coronavirus mounted.
England's coronavirus crisis could return again surprisingly
quickly, the British government's chief medical adviser said,
before lifting all pandemic-led restrictions on Monday despite
rising COVID-19 cases.
In California, Los Angeles county will reimpose its mask
mandate this weekend, the latest sign of public health officials
struggling with an alarming rise in coronavirus cases.
The slide on Wall Street is surprising considering earnings
from the companies that have reported second-quarter results so
far have surpassed estimates by 22.1%, Credit Suisse said in a
Removing year-ago comparisons show earnings are up a decent
amount from levels two years ago and inflation is likely running
about 2.6% once last year's low base effect is removed, said
Jason Pride, chief investment office for private wealth at
Glenmede in Philadelphia.
"That should ultimately be acceptable to the (equity) market
and permit an ongoing upward grind," Pride said. "My one
hesitation is equity market valuations are high."
Economically sensitive industrials, energy, financials,
consumer discretionary and materials are projected to more than
double earnings, while so-called big tech and non-cyclicals are
expected to grow 36% and 10%, respectively, Credit Suisse said.
The Dow Jones Industrial Average fell 0.67%, the S&P
500 slid 0.52% and the Nasdaq Composite lost
Gold prices dipped as a stronger dollar and slightly higher
yields dulled bullion's appeal, while bond yields were subdued
after Fed Chair Jerome Powell this week pledged "powerful
support" to ensure the U.S. economic recovery.
Mark Haefele, chief investment officer at UBS Global Wealth
Management, adviser to many of the world's super-rich, said he
expected rates to move higher as the recovery fully takes hold.
"We believe the downward trend in yields will reverse as
confidence in the economic recovery mounts. However, we see a
rebound in 10-year yields to 2% by year-end as consistent with a
continued rally in equities."
In Europe, Germany's 10-year yield fell to a new
three-month low in cautious trade ahead of next week's European
Central Bank meeting.
Oil ended the week lower, sapped in volatile trade by
expectations of growing supplies just when a rise in coronavirus
cases could lead to lockdown restrictions and depress demand.
Brent crude settled down 12 cents at $73.59 a
barrel. U.S. crude rose 16 cents to end at $71.81 a
U.S. gold futures settled 0.8% lower at $1,815 an
In foreign exchange, major currencies were little changed on
the day but the dollar headed for its best weekly gain in about
a month. The dollar index, which tracks the greenback
versus a basket of six currencies, rose 0.10% to 92.675.
The euro slid 0.02% at $1.1810, while the yen
rose 0.17% at $110.0500.
Overnight in Asia, MSCI's broadest index of Asia-Pacific
shares outside Japan lost 0.4%, weighed down by
a 1.1% drop in China's blue-chip index and a 0.8% fall
for Taiwanese shares.
The Asian weakness was in large part driven by lacklustre
earnings from TSMC, Asia's biggest firm by market
capitalization outside China, which saw its shares fall 4.1%.
(Reporting by Herbert Lash, additional reporting by Hideyuki
Sano, Swati Pandey, Sujata Rao and Dhara Ranasinghe; Editing by
Marguerita Choy and David Gregorio)