London — Calm returned to world markets on Friday, after a roller-coaster week in which oil broke $80 a barrel, government borrowing costs jumped and emerging markets were battered by a pumped-up dollar.
Traders were wondering whether it would all flare up again, with Italian politics unsettled, the US and China locked in trade talks and President Donald Trump’s decision to dump the Iran nuclear deal still causing fallout.
European stocks were 0.3% lower, but with the euro near a five-month low following the dollar’s surge and oil shares gleeful about its rapid rise, the region was heading for an eighth straight week of gains.
Slowing Japanese core consumer price growth, which kept the Bank of Japan’s elusive 2% target well out of reach, prompted the dollar to hit a four-month high of ¥111, though it had stalled elsewhere.
Italian government bonds continued their struggles too. They have suffered their biggest sell-off in more than a year this week over plans being floated by a proposed new anti-establishment coalition government.
One policy includes issuing more short-term debt to pay companies owed money by the state, the economics chief of the one of the coalition parties, the far-right League, said on Friday.
“We don’t have an agreement on a government at this point, but the market remains worried,” Société Générale strategist Alvin Tan said, pointing to this week’s fall in euro against the traditionally safe Swiss franc.
The dollar index against a basket of six major currencies steadied at 93.471 having risen to a five-month peak of 93.632.
The index has gained about 1% this week, buoyed by the surge in US Treasury yields, with the 10-year US Treasury note yield scoring a seven-year peak of 3.128%. Euro traders nudged the shared currency back above $1.1805, but it has fallen nearly 1.2% this week, largely pressured by the Italian uncertainty.
It is also heading for its fifth successive weekly drop versus the dollar, which would be a first for the shared currency since 2015.