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 Oil prices, whose sharp decline has been a big driver of recent
volatility, saw their first rise of the week, but with so much else
tumbling the so-called global "fear" gauge, the VIX <.VIX>, climbed
to its highest in almost a month.
European shares <.FTEU3> were flat but teetering after two days of
losses, and the euro dropped to $1.0960 following sharp gains since
last week's more modest than expected increase in European Central
Bank (ECB) stimulus.
The dollar <.DXY> edged higher as traders, eyeing next week's
expected increase in U.S. interest rates, took advantage of its
recent dip, while the Swiss franc <EURCHF=> rose to a 1-week high
against the euro after its central bank steered clear of any changes
in its already deeply negative rates.
"In general there is some excitement on where to position ahead of
the Fed's meeting," Rabobank strategist Philip Marey said.
"We also have crude prices which are doing some pretty amazing
things at the moment and which are having an impact on the inflation
outlook again."
Brent <LCOc1> and U.S. WTI <CLc1> crude edged up in tandem to fetch
$40.44 and $37.33 a barrel respectively, but both remained within
sight of 7-year lows hit this week. [O/R]
They found support after U.S. inventories <USOILC=ECI> fell for the
first time in 11 weeks and a 20-percent jump in vehicle sales in
China, the world's second-biggest oil user, boosted hopes of more
demand in the coming months.
Oil's stabilization helped nudge U.S. government bond yields up, but
in Europe two-year German yields touched their lowest levels since
last week's ECB disappointment, a sign that investors are not ruling
out further easing from Frankfurt.
Finland's ECB policymaker, Erkki Liikanen, fanned those hopes as he
said the bank stood ready to take additional action if necessary.
SUBMERGING MARKETS
In Asia overnight, MSCI's broadest index of Asia-Pacific shares
outside Japan <.MIAPJ0000PUS> shed 0.1 percent.
Japan's Nikkei <.N225> closed down 1.3 percent at a five-week low
and Australian shares <.AXJO> ended the day down 0.8 percent.
Chinese shares also gave up early gains, with the CSI300 <.CSI300>
closing 0.35 percent in the red. Hong Kong, Indonesia and Korea all
finished down also.
"The process of taking money off the table is likely to be driven by
nervousness ahead of the U.S. Federal Reserve's moves next week,
along with the soft oil price being viewed as a barometer of future
economic activity," White Funds Management managing director, Angus
Gluskie, said.
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Emerging markets had a host of difficult news to deal with.
South Africa's rand <ZAR=> tumbled to a new record low and the cost
of insuring its debt against default hit its highest since early
2009 after President Jacob Zuma removed Finance Minister Nhlanhla
Nene from his position.
Nene's dismissal comes on the heels of a credit rating downgrade to
just one notch above junk by Fitch last Friday. South Africa's
economy is barely growing and being squeezed by lower commodity
prices globally.
Concerns were also mounting for Brazil. Moody's put its credit
rating on review for a possible downgrade to junk due to its a
severe recession, failed austerity efforts and rising risks of
political paralysis.
Emerging Asia currencies had the added pressure of another fall in
China's yuan <CNY=CFXS>. It dropped 0.2 percent to 6.4411 per
dollar, its weakest showing since Aug. 13 in the aftermath of
China's unexpected devaluation.
The People's Bank of China set its daily guidance rate at its lowest
in more than four years, adding to speculation that Beijing will
leave the yuan to slide for a while.
"I'm not surprised that more weakening of CNY (yuan) is here,"
Nordea Markets senior analyst Amy Yuan Zhuang said.
Another notable mover was the Australian dollar, which soared after
the latest jump in jobs numbers notched the strongest two-month
total for 28 years and pushed unemployment to a 19-month low of 5.8
percent.
(Additional reporting by Shinichi Saoshiro in Tokyo; Editing by
Louise Ireland)
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