GLOBAL MARKETS-Equities, Treasuries slip, stocks flat

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GLOBAL MARKETS-Equities, Treasuries slip, stocks flat

SINGAPORE Reuters -- Bonds slipped, the dollar went up and Asia's stock market started to shaky start to the second half on Friday, as investors grow increasingly nervous about the global economic outlook.

MSCI's broadest index of Asia-Pacific shares outside Japan was flat, with trade thinned due to a holiday in Hong Kong.

Japan's Nikkei fell by 0.7%. Treasuries fell, lifting yields a little bit along the curve, and U.S. equity futures fell about 0.2%. The S&P 500 closed out its worst first-half since 1970 overnight, and the Treasury market has taken a beating in the past six months that Deutsche Bank estimates the performance is the poorest in more than two centuries.

Inflation and central banks' response to it is responsible. The focus is now on any clues about whether it has peaked. Consumer price data in the Eurozone is due later on Friday, and July figures in the United States will be a big deal for financial markets.

German inflation unexpectedly slowed last month, as did the pace of U.S consumer spending in May, according to the data released on Thursday, prompting a pullback in rate-hike bets but at the same time increasing worries about economic weakness.

Steven Wieting, Chief Investment Strategist at Citi Global Wealth Investments, said investors want a clear outlook, but the future does not present a steady, reliable recovery.

It was a time when the economy was depressed that we could put money to work here with a lot of confidence. He said we can't say that now.

The crude futures of Brent were last in the $109.76 a barrel. Growth worries punched oil lower. O R The uncertainty keeps a bid behind the U.S. dollar, even though markets have pulled back on aggressive interest-rate forecasts and have recently priced Federal Reserve rate cuts as soon as mid- 2023.

The dollar had its best quarter since 2016 for the three months to the end of June, and the euro and yen were losers. The dollar went up 0.7% on Friday and went for a weekly gain, with the dollar index up 0.7% on the week to 104.830. China has suddenly become a bright spot despite the gloom. The Mainland markets bounced back about 20% from April lows in the last quarter.

China is emerging from a lock-in, has no inflation problem and factory activity data shows a welcome return to growth, with Caixin PMI data showing June brought the fastest expansion in manufacturing in 13 months.

The Shanghai Composite and the Blue-chip CSI 300 edged a bit less than 3% on Friday, but they are all set to log five straight weeks of gains. Even if the dollar remains in demand, the yuan has steadied, and has leaped a bit on some regional currencies. The dollar went to $1.0469 per euro and was up 0.3% to $0.6883 on the Aussie. AUD bought 135.64 yen after a blistering 11.6% rise over the June quarter. The strong dollar and rising U.S yields kept a lid on gold, which pays no yield, and it was drifting toward a weekly loss of $1,805 an ounce on Friday.

Indonesia is a notable outperformer in Asia, where stocks are up more than 5% for the year and could benefit from foreign money flowing back to emerging markets. David Beale, vice chair of global emerging markets' institutional client coverage at Deutsche Bank in Singapore said that clients are in risk reduction mode and there's a lot of money to come back into the asset class.

He said that there was a better path if there were signs of inflation plateauing and rate hikes starting to be priced out. The U.S. CPI print will be critical next month.