Oil prices fell to their lowest level since February and government bond yields fell as a pessimistic forecast from the Bank of England added to concerns about the global economic outlook.
Brent crude, the international oil benchmark, fell 2.8 percent to $94.12 a barrel, bringing its losses for the week to more than 12 percent.
The BoE on Thursday became the latest central bank to announce a rate hike, raising rates by 0.5 percentage points for the first time in 27 years.
Despite the rate hike, UK government gilt yields fell immediately after the announcement as investors bet that the worst squeeze on living standards in more than 60 years would force the central bank to tighten further rate increases. Yields fall when prices rise.
The benchmark 10-year gold yield fell as much as 0.1 percentage point before paring back much of the move to 1.89 percent, down 0.02 percentage points for the day, according to Bloomberg data .
“The price action we’re seeing right now in response to the biggest increase in 27 years is not what you would normally expect,” said Karim Chedid, head of investment strategy for Europe at the iShares unit from BlackRock.
“It’s a moderate reaction,” Chedid continued, because “the market believes that the BoE cannot continue with the same level of [monetary] tightening in this economic context”.
U.S. and euro zone government bonds also rose in price on Thursday, following an indication by the BoE that other central banks may be forced to soften their anti-inflation stance to balance support for economic growth.
Like gold, the 10-year U.S. Treasury yield fell in early trade before retreating to 2.66 percent, down 0.04 percentage points on the day. Germany’s 10-year Bund yield fell 0.07 percentage points to 0.80%.
Federal Reserve officials moved this week to reject market speculation that the US central bank would begin cutting rates early next year in response to an economic slowdown.
St Louis Fed President James Bullard told CNBC on Wednesday that US interest rates would “probably have to be higher for longer” to bring inflation down from 40-year highs.
“Investors have been assuming that central banks are not going to go as far as they said they would,” said Eric Knutzen, director of multi-asset investments at Neuberger Berman. “We think that’s too optimistic.”
Equity markets faltered amid the uncertain outlook and thin summer trading. The S&P 500 closed 0.1% lower, while the Nasdaq Composite gained 0.4%.
The Nasdaq has added 15 percent since June 30, boosted by strong earnings in the technology sector and predictions of lower interest rates boosting valuations of higher-growth companies. The rally followed the worst first half of the year for US stocks in half a century.
“This is a bear market rally,” said Willem Sels, HSBC’s global head of private bank investments, with markets “embracing the view that inflation will come down quickly and there will be a big pivot from central banks “.
Sterling also fell sharply after the BoE announcement before recovering much of its losses. The currency gained 0.2 percent against the dollar by afternoon trading in New York to $1.217, but remained 0.6 percent lower than the euro at 1.188 euros.