Global equities rose and a key part of the Treasury yield curve inverted further on Friday as investors anticipated the U.S. economy will stall next year and lead the Federal Reserve to back off its aggressive hiking of interest rates.

Surprisingly strong retail sales data this week hammered home the idea that the Fed will tighten monetary policy further even though soft consumer and producer price pressures suggested inflation has peaked and would allow rate hikes to ease.

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The remarks were a blow to investors who had wager rates would peak at 5% or below. Futures now show the Fed funds rate at 5.02% by May, up from 3.83% now. But futures also point to a 4.57% rate in December on expectations the Fed relents as the economy weakens and moves to ease policy.

Three top policymakers in Europe also said that the European Central Bank must raise rates high enough to dampen growth as it fights sky-high inflation.

“Where we think the market is getting it wrong, is pricing in rate cuts next year,” said Dec Mullarkey, managing director of investment strategy and asset allocation at SLC Management.

Fed Chairman Jerome “Powell often made the point, ‘we’re concerned that if you let up too quickly, that you’ll have a second surge of inflation, and that’s not something they want to repeat’,” Mullarkey said.

The market is pricing in a recession next year as the yield spread between two- and 10-year Treasuries deepened to minus 70 basis points, an inverted level last reached in 2000 that is clear a harbinger of an impending recession.

The 2-year note’s yield rose 0.7 basis points to 4.461%, much higher than the 10-year note, which was up 1.9 basis points to 3.792%.

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The MSCI world equities index rose 0.44% but was heading for a loss of about 0.5% on the week, coming off recent two-month highs. The pan-European STOXX 600 index rose 1.02%.

Inflows into global equity funds hit their highest level in 35 weeks in the week to Wednesday, according to a report from Bank of America (BofA), as investor optimism brightened.

On Wall Street, the Dow Jones Industrial Average rose 0.2%, the S&P 500 gained 0.03% and the Nasdaq Composite dropped 0.3%.

Euro zone banks are set to repay 296 billion euros in multi-year loans from the European Central Bank, the ECB said on Friday.

The amount is less than the half a trillion euros that analysts were expecting, but still the biggest drop in excess liquidity since records began in 2000.

The yield on Germany’s 10-year government bond, the benchmark for the euro zone, was at 2.012%.

The euro down 0.03% to $1.0357, having eased from a four-month peak of $1.0481 hit on Tuesday as some policymakers argued for caution on tightening.

The yen strengthened 0.21% versus the dollar at 139.90.

Chinese blue chips dropped 0.45% amid reports that Beijing had asked banks to check liquidity in the bond market after soaring yields caused losses for some investors.

There were also concerns that a surge in COVID-19 cases in China would challenge plans to ease strict movement curbs that have throttled the economy.

Japan’s Nikkei slipped 0.1% as data showed inflation running at a 40-year high as a weak yen stoked import costs.

Oil fell by more than $3 a barrel and was on track for a second weekly decline, pressured by concern about weakening demand in China and further increases to US interest rates.

US crude recently fell 2.57% to $79.54 per barrel and Brent was at $87.46, down 2.58% on the day. US gold futures fell 0.30% to $1,755.50 an ounce.