SINGAPORE - Stocks fell and the dollar rose on Friday, beginning the second half of the year much as the first one had ended, only this time with bonds rallying for a change as investors have shifted from worrying about inflation to fearing a global recession.

S&P 500 futures fell 1 percent. MSCI's index of Asia-Pacific shares outside Japan fell 1 percent.

Japan's Nikkei fell 2 percent. The Australian and New Zealand dollars each fell 1 percent to two-year lows. US Treasuries rose, driving benchmark 10-year yields to one-month lows.

Demand-tracking commodities such as oil and copper were under pressure, leaving Brent crude futures at a one-week low of $108.87 a barrel.

"Capitulation is the wrong approach but earnings pressure will follow to match the macro downgrades," said George Boubouras at K2 Asset Management in Melbourne.

"We are pricing in a recession phase and bonds will now outperform ... low correlation between bonds and equities is what should happen - unlike the first half of calendar 2022."

The S&P 500 closed out its worst first-half since 1970 on Thursday and the Treasury market took such a beating that Deutsche Bank estimated the half's performance was the poorest in more than two centuries. 

It has been hints of peaking inflation and signs of weak growth that have started steadying bond markets. Two-year Treasuries are on course for their best week since markets' pandemic meltdown of March 2020 as traders wind back hike bets.

The two-year yield is down almost 14 basis points this week to 2.904 percent. The 10-year yield is down about 15 bps on the week to 2.9667 percent.

Fed funds futures, which a few weeks ago were priced for rates to hit 4 percent next year, are now showing that markets expect rate cuts by the middle of 2023 and a peak below 3.5 percent.