World shares chalked up their longest losing streak in well over a year on Thursday as bets on rising US interest rates propelled the dollar and benchmark bond yields higher and beaten-up commodity markets struggled to find a footing.
With global energy stocks on the run, MSCI's 46-country All World index fell for a sixth consecutive day, the longest slide since the start of 2016 and down from an all-time high set just weeks ago.
Europe's main markets also started in red though the euro was one of the few currencies to make headway against the dollar as focus turned to how the European Central Bank will respond to signs of a pick-up in the euro zone economy. ECB policymakers meet later.
“There is only one game in town for this meeting and thats whether Draghi will signal that some form of removal of accommodation is on the cards,” said Aberdeen Asset Management investment manager Patrick ODonnell.
“He is going to have to acknowledge the better activity data of late. But stubbornly low core inflation probably gives him a get out card.”
China economic data
Economic data out of China continued to surprise, with consumer inflation coming in well under expectations at an annual 0.8 per cent, largely due to falling food prices.
Producer prices still rose at the fastest pace since 2008, keeping alive hopes that China had stopped exporting disinflation to the rest of the world.
That inflationary pulse was timely given oil prices dived 5 percent on Wednesday to their lowest this year as U.S. crude inventories ballooned to a record high.
The market did pare some losses on Thursday, with US crude up 30 cents at $50.58 and Brent crude bouncing 43 cents to $53.54 a barrel.
Wall Street had been side-swiped by the retreat in oil, with energy stocks losing 2.5 per cent in their worst performance since mid-September.
The Dow fell 0.33 per cent, while the S&P 500 lost 0.23 per cent and the Nasdaq added 0.06 per cent.
Interest rate-sensitive real estate stocks also took a hit after the ADP employment report showed private payrolls surged by 298,000 last month, far above expectations.
No stopping them
Tom Porcelli, chief U.S. economist at RBC Capital Markets, said the report was so strong that only a truly dire payrolls report on Friday would deter the Federal Reserve from hiking US interest rates next week.
“There is almost no number that would stop them,” said Porcelli. “It would take an extreme event for the Fed to take a pass at this point.”
Indeed, he noted the ADP surprise meant there was a real chance payrolls could beat expectations, perhaps by a lot.
“On the face of it, ADP is consistent with private payrolls of about 340,000,” he said. The current median forecast is for a rise of 190,000.
With a hike seemingly certain, and at least two more likely over the year, yields on two-year Treasury notes climbed to 1.378 per cent, the highest since August 2009.
That widened its premium over German debt to a meaty 220 basis points, the largest gap since early 2000. That is a burden for the euro that is likely to get heavier, as the ECB seems wedded to its super-easy policy.
The single currency was stuck at $1.05590 in European trading, well off a $1.0640 top hit early in the week.
The dollar index was last up 0.1 per cent at 102.130, and close to a March 2 peak of 102.26. The dollar also climbed to a three week high 114.85 yen and set seven-, nine- and 10-week peaks against the Aussie, Kiwi and Canadian dollars.
“The Canadian dollar has been a victim of hawkish interest rate expectations in the United States, lower oil prices and a Bank of Canada that has expressed concern over the outlook for the Canadian economy,” analysts at currencies exchange LMAX said in a morning note.
“Wednesdays stellar US ADP print and another big slide in oil have opened fresh 2017 lows.”
The firmer dollar also pressured a host of commodities from iron ore to copper, which touched a seven-week trough.
Spot gold was at $1,204.90, having struck a five-week low as higher interest rates raised the opportunity cost of holding the non-yielding metal.