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Hong Kong - European stocks fell with emerging markets in a week dominated by speculation on the timing of US interest-rate increases that sent the dollar swinging between gains and losses.
Italy’s shares led declines on Friday and its government bonds yielded the most relative to Spain’s in more than 18 months as concern over the health of the country’s banking industry and political risks weighed on the nation’s assets.
Equities in emerging markets erased this week’s gains. Gold lost ground for the first time this week as Bloomberg’s dollar index rose from a three-month low.
Oil was headed for its biggest weekly jump since March amid speculation major producers will act to freeze output.
Financial markets were buffeted this week by more hawkish comments from regional Federal Reserve chiefs including New York’s William Dudley, while minutes of the last policy meeting struck a dovish tone seeing little prospect of a sharp increase in price pressure.
The events set the stage for Fed Chair Janet Yellen, who speaks at a meeting of global policy makers in Jackson Hole, Wyoming, next week.
"The Fed, at least in speeches this week, has been trying to get markets more in line with what they expect from monetary tightening this year, said Richard Falkenhall, a strategist at SEB AB in Stockholm. "But the market is still not convinced."
Stocks
The Stoxx Europe 600 Index slid 0.7% at 7:38 a.m. in New York, heading for a 1.6% weekly decline. Trading volumes were about a third lower than the 30-day average. Italy’s FTSE MIB - the worst performing index in the world this year - tumbled 1.9%. Intesa Sanpaolo weighed heaviest on the index with a 3.1% drop.
Insurers and banks were the biggest decliners on Friday. BHP Billiton and Glencore dragged a gauge of miners down as commodity prices slipped. Royal Vopak tumbled 6.9% after the storage-tank operator reported lower revenue and cash flow.
A.P. Moeller-Maersk rose 1.2% after saying it’s still considering several options in its strategic review after a local newspaper reported that the Danish conglomerate was exploring a two-way split into an energy and a transport company.
S&P 500 Index futures retreated 0.3%, indicating equities will decline after Thursday eking out gains. In premarket trading, Deere & Company rose 1.4% after fiscal third-quarter earnings beat estimates.
Foot Locker advanced 3.8% on sales growth, while Applied Materials jumped 6.2% after the biggest maker of machinery used to manufacture semiconductors predicted revenue and profit that may surpass estimates.
The MSCI Emerging Markets Index slid 0.7%, leaving it down less than 0.1% in the week. The measure is up 15% this year compared with a 4.4% increase in the MSCI World Index of developed-nation stocks.
Currencies
The Bloomberg Dollar Spot Index rose 0.5%, trimming this week’s loss to 0.9%. While the US central bank’s minutes showed Wednesday that officials were split in July on the need for an interest-rate hike, New York Fed chief Dudley said the previous day that the market was underestimating the likelihood of an increase.
"The Fed’s apparent lack of urgency to raise rates is encouraging expectations of further dollar declines,"said Sean Callow, a senior foreign-exchange strategist at Westpac Banking Corporation in Sydney. "Today is probably just a blip in the dollar’s lousy August so far."
The yen weakened 0.3% to 100.15 per dollar, paring its weekly gain to 1.1%. The currency has strengthened 20% this year and Japan’s Vice Finance Minister Masatsugu Asakawa said on Thursday that policy makers are prepared to take action if speculative trading is evident.
The MSCI Emerging Markets Currency Index declined 0.6%, set for its first weekly loss in four weeks. South Korea’s won and South Africa’s rand led losses on Friday, both sliding at least 0.9%.
Bonds
Italian bonds are falling relative to Spain’s amid signs the two nations’ political fortunes are diverging. Spain is moving toward a solution to its political impasse, while Italy faces a referendum on political reform that could decide the fate of Prime Minister Matteo Renzi.
The yield difference or spread between the nations’ 10-year securities was at 17 basis points, the most since January 2015.
Treasuries due in a decade yielded 1.55%, little changed on the day and up four basis points for the week. The two-year note yield, among the maturities most sensitive to the outlook for Fed policy, was up two basis points this week at 0.73%.
The probability of borrowing costs being raised in December stands at 47%, fed fund futures show. That compares with 51% after Dudley’s comments earlier this week and 36% at the start of the month.
Ukrainian bonds headed for their worst week since May on concern a flare-up in fighting between government troops and separatists in the country’s east will escalate.
The yield on the 2019 Eurobond rose 15 basis points to 8.51% on Friday, bringing the increase this week to 44 basis points.
President Petro Poroshenko warned on Thursday of a possible invasion by Russia.
Commodities
Oil entered a bull market this week amid speculation that major producers may act to freeze output at the same time US crude and fuel stockpiles decline.
West Texas Intermediate crude was little changed at $48.18 a barrel, paring its weekly gain to 8.4%. Brent lost 0.3% to $50.74.
Prices have risen steadily since Saudi Arabian Energy Minister Khalid Al-Falih said August 11 that informal talks in September may lead to action to stabilize the market.
Most metals declined as a rebounding dollar made commodities more expensive to investors in other currencies. Gold dropped 0.5% to $1 345.03 an ounce, snapping a four-day advance as the dollar rebounded.
Zinc dropped 0.8%, paring a weekly gain and retreating from the highest level in 15 months. Copper fell 0.4%.
UK month-ahead natural gas dropped 5.3% to 29.2 pence a therm, the lowest since May, as supply was forecast to exceed demand. Maintenance at facilities in Norway, the UK and Germany ended, boosting flows.
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