Global stocks around the world slipped into the red on Friday but remained on track for their biggest weekly gain in eight as investors grappled with the possibility of US interest rates rising next week.
While next Thursday’s eagerly anticipated decision from the Federal Reserve hangs very much in the balance, meaning the potential for market volatility remains high, stocks and government bond yields have moved higher this week.
Reflecting the growing uncertainty as the big day approaches, however, the dollar slipped on Friday and was on track for a fall of nearly 1 per cent on the week, its first weekly decline in three.
“We’re going through quite a fragile time, and we’ll have to see how it evolves from here. That will depend on Fed action, as well as whether there’s further negative news from China,’’ said Veronika Pechlaner, European equity fund manager at Ashburton.
“This is not the time to make huge bets either way, but longer term we remain constructive on equities.’’
In early trading on Friday European shares were lower. The FTSEuroFirst index of leading 300 shares was down 0.5 per cent at 1,408 points, but still up more than 1 per cent on the week, its best performance since mid-July.
Britain’s FTSE 100 was down 0.2 per cent at 6,139 points, Germany’s DAX was down 0.5 per cent at 10,161 points and France’s CAC 40 was off 0.3 per cent at 4,582 points.
US stock futures slipped 0.2 percent, suggesting a slightly weaker opening on Wall Street. The S&P 500 has bounced back from last week’s 3.4 per cent fall, however, and is well on track for its best week since July.
MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.1 per cent, but was on for a rise of more than 2.5 per cent on the week, its biggest weekly gain in five months.
Chinese shares ended another choppy week little changed on Friday. The Shanghai Composite Index rose 1.2 per cent on the week, a welcome relief for investors after it had lost around 20 per cent in the preceding three.
Chinese industrial output, retail sales and investment data on Sunday will give clues on whether the world’s second-largest economy is continuing to lose momentum and help set the tone for markets next week.
Yuan firms, dollar steadies
US data on Thursday suggested the labour market was gaining momentum in early September as fewer Americans filed for weekly unemployment benefits. But a separate report showed weak inflation, further clouding the outlook for what the Fed will decide to do at its September 16-17 policy meeting.
Considering volatile global equities, increasing uncertainty over China and emerging markets, and other major central banks around the world easing policy rather than tightening, it could be a high bar for the Fed to raise rates next week.
“Our analysis suggests that the recent tightening in financial conditions, if maintained going forward, would be equivalent to around three (rate) hikes,’’ Goldman Sachs US economists wrote in a note to clients.
“Given that markets have done much of the Fed’s ‘dirty work’, we expect Fed officials to be on hold at least until December.’’
In currencies the dollar was flat against the yen at 120.50 and the euro was up 0.2 per cent at $1.1300, meaning the dollar’s trade-weighted index was down slightly at 95.40.
The benchmark 10-year US Treasury yield was down a basis point on the day at 2.21 per cent, but up 8 basis points so far this week.
The two-year yield, which is more sensitive to interest rate moves and expectations, was flat on the day at 0.735 per cent but up slightly on the week. On Wednesday, it hit a three-month high of 0.766 per cent.
In commodities, US crude oil futures gave back some of their overnight gains after top exporter Saudi Arabia said it saw no need for a producer summit to defend prices.
US crude was down 2 per cent at $45.00 a barrel, after rallying 4 per cent earlier on US Energy Information Administration data that showed strong demand for gasoline.
Brent, which gained 2.8 per cent in the previous session, was down nearly 2 per cent at $48.00.
Spot gold edged down to $1,108 an ounce, on track to drop more than 1 per cent for the week, its third straight weekly fall.