By Herbert Lash
NEW YORK (Reuters) - Global equity markets rallied on Friday, with European shares hitting new highs on strong earnings, while the dollar eased but posted its biggest weekly gain since late August.
Gold rose to notch its best week in six months and extend a winning streak to seven sessions. The advance has been spurred by surging U.S. consumer prices that bolstered the metal's appeal as an inflation hedge and rattled bond investors.
The 6.2% year-over-year rise in inflation in October, the biggest jump since November 1990, upended the U.S. Treasury market as traders mulled whether the Federal Reserve will be forced to raise interest rates sooner rather than later. [US/]
Crude oil futures closed the week with a third consecutive weekly fall after sharp swings driven by the dollar's recent strengthening.
On Wall Street, mega-cap stocks Microsoft Corp, Apple Inc, Meta Platforms Inc, formerly known as Facebook; Amazon.com Inc and Google parent Alphabet Inc led stocks higher.
A case can be made that big tech stocks will react better to rising rates than cyclicals, said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York.
"There's a feeling from the users and purchasers of tech that they can't be left behind, that they always need to be on the cutting edge," he said. "That means they have more consistent and steadier growth regardless of the economic environment."
MSCI's all-country world index closed up 0.64%, while the broad STOXX Europe 600 index rose 0.30% to a record closing high. France's CAC40 index and Germany's DAX index also ended at record closing highs.
On Wall Street, the Dow Jones Industrial Average rose 0.50%, the S&P 500 added 0.72% and the Nasdaq Composite advanced 1.00%.
Growth stocks rose 1.15%, outperforming a 0.20% gain in value stocks. "This is a growthy market," Ghriskey said.
Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities, said inflation was a risk to watch, but it was still in the future.
"Stock prices will face a major crash only if the Federal Reserve turns out to be completely wrong in its assessment and is forced to raise interest rates rapidly. That's not where we are now," Fujito said.
In Europe, euro zone money markets priced in two full European Central Bank rate hikes by the end of next year. A Reuters poll showed the Bank of England is expected to be the first major central bank to raise rates, probably next month.
Tesla Inc Chief Executive Elon Musk sold more shares of the electric carmaker, regulatory filings showed on Friday. Tesla shares fell 2.8%, the biggest decliner on the Nasdaq 100.
The dollar index, which tracks the greenback versus a basket of six currencies, slid 0.046% to 95.117.
The euro eased 0.08% to $1.1441, while the yen edged lower 0.14% to $113.8900.
Too many hedge funds expected the Fed and other central banks to quickly turn hawkish as inflation rises and have been forced to cover their short positions in bonds, said Thomas Hayes, chairman and managing member at Great Hill Capital LLC.
"Fund managers were the least overweight bonds that they've ever been in the history of the data going back over two decades," Hayes said. "The volatility that you saw on and off in the last week or so was attributable to wrong-footedness in the bond market by a lot of hedge funds."
The yield on 10-year U.S. Treasury notes rose 2.0 basis points to 1.5784%.
German 10-year yields slid 0.7 basis point to -0.262%.
"Directionally, the line of least resistance is for lower bond prices and higher yields, and the stock market does not seem to care that much," said Mike Hewson, chief markets analyst at CMC Markets.
(Graphic: Global fund flows into equity sectors: https://fingfx.thomsonreuters.com/gfx/mkt/zjvqkwnlevx/Global%20fund%20flows%20into%20equity%20sectors.jpg)
Crude prices were hit by a firmer dollar and speculation the Biden administration might release oil from the U.S. Strategic Petroleum Reserve to cool rising prices.
Brent crude settled down $0.70 at $82.17 a barrel. U.S. crude fell $0.80 to settle at $80.79 a barrel.
U.S. gold futures settled up 0.3% at $1,868.5 an ounce, adding to a gain of about 2.7% for the week.
Bitcoin fell 0.92% to $64,227.17.
(Reporting by Herbert Lash, additional reporting by Huw Jones in London, Hideyuki Sano and Dhara Ranasinghe; Editing by Mark Potter, Dan Grebler, Cynthia Osterman and Jonathan Oatis)