European Shares Set for Weekly Drop as oil falls

European shares were headed for a weekly loss as oil resumed declines. Asian shares rose from a six-week low after Apple Inc. drove a rebound in U.S. equities and traders pared the probability that the Federal Reserve will raise interest rates this year to less than 50 percent.

The Stoxx Europe 600 Index fluctuated in early trading as health-care stocks advanced and banks fell. The MSCI Asia Pacific Index rose for the first time in seven days, albeit with markets in half of the region’s 10 biggest economies shut for holidays. Russia’s ruble declined before a forecast cut in interest rates and as crude traded below $44 a barrel amid concern about a glut. Long-end bonds in the U.S. and Japan were set for weekly losses, while benchmark notes in New Zealand had their biggest drop in more than a year.

Stocks, bonds and commodities all lost ground this week amid concern central banks in Europe and Japan are becoming hesitant to boost stimulus that’s so far done little to revive growth and inflation. Analysts are split over the likelihood of further easing when the Bank of Japan concludes a policy meeting on Wednesday. The Federal Reserve has a decision due the same day and the chance of an interest-rate hike has been all but killed off by Thursday data showing declines in U.S. retail sales and factory output.

“Expectations of what the BOJ might announce next Wednesday, be it more easing or more tightening, are unprecedented in their divergence,” said Christopher Wood, chief equity strategist at CLSA Ltd. “The result is even more uncertainty than normal, creating a potentially extremely perilous environment for macro speculators.”

Stocks

The Stoxx Europe 600 Index was down less than 0.1 percent as of 8:24 a.m. London time, poised for a 1.6 percent weekly loss.

The MSCI Asia Pacific Index was up 0.7 percent, trimming this week’s drop to about 2 percent. Benchmarks in Australia and India were the region’s top performers with gains of more than 1 percent, while Philippine stocks dropped by the most in three months. Markets in mainland China, Taiwan, Malaysia, South Korea and Hong Kong were closed for holidays.

Japanese companies that are suppliers to Apple surged after the U.S. company’s shares climbed to their highest level of the year amid growing optimism over the iPhone 7’s market reception. Japan Display Inc. soared 11 percent, while Alps Electric Co. jumped more than 6 percent.

Futures on the S&P 500 Index fell 0.2 percent, after the benchmark rallied 1 percent on Thursday. The U.S. has updates on inflation and consumer sentiment coming on Friday, reports that may further sway expectations for the timing of the Fed’s next interest-rate increase.

Currencies

The ruble weakened 0.4 percent versus the dollar as the drop in oil prices worsened the outlook for the nation’s crude exports. Russia’s central bank is expected to cut its benchmark rate by half a percentage point to 10 percent at a policy review on Friday, according to all but five of 42 economists surveyed by Bloomberg.

The Bloomberg Dollar Spot Index was little changed following two days of declines. Futures prices put the probability of a Fed rate hike next week at 18 percent following Thursday reports that showed U.S. retail sales declined 0.3 percent in August from the previous month and industrial output dropped 0.4 percent. The chance of a rate rise this year has slipped below 50 percent for the first time in a month.

“Near term, the dollar is likely to come under pressure as the Fed stands pat next week,” said Rodrigo Catril, a currency strategist at National Australia Bank Ltd. in Sydney. "However, as we look towards the end of the year, we still see a resurgence in dollar strength as the Fed prepares the market for a December hike."

The yen rose 0.2 percent to 101.93 per dollar, set for a 0.8 percent weekly advance. Just over half of economists surveyed by Bloomberg anticipate the BOJ will ease monetary policy further on Sept. 21, with an interest-rate cut seen as the most likely option.

Mexico’s peso reversed earlier losses to trade 0.2 percent higher. It’s still down 2.1 percent for the week as polls indicate growing support for Donald Trump ahead of a U.S. presidential election in November. Trump has said he may seek to dismantle the North American Free Trade Agreement and that he’d make Mexico pay for a wall along the U.S.’s southern border by withholding immigrant remittances.

Commodities

Crude fell 0.8 percent to $43.57 a barrel in New York, extending its weekly slide to about 5 percent. OPEC members Libya and Nigeria, whose supplies have been reduced by domestic conflicts, are preparing to boost exports within weeks. The oil surplus will last longer than previously thought as demand growth slumps and output proves resilient, the International Energy Agency said Tuesday.

Nickel fell by about 6 percent this week in London, its biggest loss of the year. Copper prices gained more than 3 percent, having got a boost in recent days from better-than-expected economic data in China, the biggest user of industrial metals.

Soybeans in Chicago were down more than 3 percent for the week amid speculation that a record U.S. harvest will cap prices. Corn and wheat also lost ground on expectations for ample supply.

Bonds

Long-term bonds in the U.S. took a knock this week, lifting the 30-year yield to levels last seen in June, amid speculation monetary loosening around the world has about run its course.

Japan’s 30-year yield climbed to a six-month high during the week and rates on short-term securities fell on bets the BOJ will adjust policy to steepen the yield curve. The rate on notes due in September 2046 increased by four basis points to 0.56 percent.

The pickup in yields has been damping Japanese demand for higher-yielding debt elsewhere, with the nation’s foreign bond holdings having been cut by the most since April in the two weeks through Sept. 9. New Zealand’s bonds due in a decade fell 1.9 percent from a week ago, pushing their yield up by 22 basis points to 2.58.

Source – Bloomberg