World shares slid towards their fourth weekly loss in the last five on Friday, as a boost from a supportive-sounding European Central Bank gave way to caution ahead of closely watched US jobs data.
Rumbling concerns about China had consigned Asian shares to a seventh straight weekly loss and Europe’s markets started 1.3 to 1.6 per cent in the red after gains of almost 2.5 per cent on Thursday.
Those had been driven by ECB President Mario Draghi, who said the bank was prepared to expand its €1 trillion stimulus programme aimed at lifting growth and inflation in the euro zone. But Friday’s focus was on whether US jobs data due at 1230 GMT would keep Federal Reserve on track to raise its record low interest rates.
Economists polled by Reuters expect the US economy to have produced 220,000 new jobs last month, continuing the robust employment creation of the past five years.
Average hourly earnings are predicted to have risen by 0.2 per cent, as they did in July. If they do come in strong it will keep alive chances that a Fed hike, which would be its first in almost a decade, could come this month.
Fed rate hike
Following a tough last month for global markets however, markets now see December or early next year as more likely.
“We were until recently firm Septemberists but now it’s very much on a knife edge,’’ said Luke Bartholomew at Aberdeen Asset Management in London.
“Market volatility has shaken them (Fed policymakers) somewhat ... so seeing that markets are very fragile, do they want to shock them with hiking now? I think that is a very live debate now.’’
In the currency markets, the dollar fell fractionally against the yen to 119.21 as the safe-haven Japanese unit capped a third week of gains ahead of the jobs data.
The euro also clawed back above $1.1140 having been chopped to a two-week low of $1.10875 and a four-month low against the yen by Draghi’s talk of more money printing on Thursday.
The ECB also cut its growth and inflation forecasts and warned of possible further fallout from China. Coupled with a potential delay to a Fed move, euro zone bond yields fell further on Friday, with German 10-year yields, hitting their lowest level in nearly a week.
Crisis proportions
Asia’s ongoing strains remained close to surface despite hard-hit Chinese markets being closed for a second day.
MSCI’s broadest index of Asia-Pacific shares outside Japan chalked up its worst weekly losing streak since 2011 as it ended the latest one down more that 4 per cent.
Japan's Nikkei fared even worse. It fell 2.5 per cent on the day and 7 per cent for the week as it slumped to a seven-month low.
There was so sign of relief for the region’s emerging market currencies either. Bank Negara Malaysia was spotted intervening to stem the ringgit’s weakness as confidence continued to be hit by a corruption scandal swirling round Prime Minister Najib Razak.
The South Korean won has slid 1.5 per cent throughout this week as foreign investors have also kept selling Seoul shares, while Indonesia’s rupiah is down 1.5 per cent.
Wading in overnight, the Institute of International Finance warned the current slump in emerging market stocks — down 40 per cent since April — and currencies has now reached “crisis proportions’’.
Even if the Federal Reserve were to hold off from raising US interest rates in September, it was only likely to offer “short-term relief’’, it added.
Commodities markets
In commodities markets, which have been battered by fears of a hard landing in China, trade remained highly volatile.
After gains in early trading, Brent crude futures slipped 1.1 per cent to $50.10 per barrel although it was clinging to a second week of modest gains.
Copper fell 1.2 per cent to $5,181 per tonne after surging to $5,314 on Thursday, its highest in over three weeks, as bearish investors closed out positions ahead of the US jobs data.
Aluminium dipped back too, having also shot up to a one-month peak $1,641 a tonne.
A flood of data from China in coming weeks is likely to point to further weakness in the world’s second-largest economy, reinforcing expectations that Beijing needs to roll out fresh stimulus measures and keeping global financial markets on edge.