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 The commodities crunch was compounded as the dollar began to flex
its muscles again after a quiet couple of days, gold slipped back
towards a 5-year low and a major sea freight index hit its lowest
level on record.
Global stock markets seemed largely oblivious, however.
Wall Street expected to start 0.2 to 0.3 percent higher with its
main S&P 500 and Dow Jones Industrial indexes on course for
near 3 percent rises on the week.
European shares nudged higher too as the main London, Frankfurt and
Paris markets headed for 2-3.5 percent weekly gains and Tokyo's
Nikkei ended Asia's week near a three-month high. [.T]
The euro was sent tumbling back below $1.07 to $1.0670 as Mario
Draghi gave the clearest hint yet that the ECB will expand its
already 1 trillion euro stimulus program next month and cut its key
deposit rate even deeper into negative territory.
"If we decide that the current trajectory of our policy is not
sufficient... we will do what we must to raise inflation as quickly
as possible," Draghi said at a conference in Frankfurt, adding that
a decision will be made at the ECB's Dec. 3 meeting.
One of the most striking things is that the move will come just over
a week before the ECB's U.S. counterpart, the Federal Reserve, is
likely to deliver the first hike in U.S. interest rates rise in
almost a decade.
The expected divergence pushed the dollar back up towards a 7-month
high against a basket of top currencies in early European trading.
Goldman Sachs on Thursday made a stronger greenback its top trade
tip for 2016.
The prospect of higher Fed rates and dollar, alongside concerns
about China's economic health, continue to generate uncertainty.
For example, copper - seen as a good gauge of the global economy
because of its wide industrial use - has been hit by persistent
worries that supply cuts won't be enough to offset the pressure on
prices caused by weak demand in top user China.
It slumped to a 6-1/2-year low of $4,573.50 per tonne before
bouncing back to $4,655.00, still down 3.8 percent so far this week.
The Baltic Index <.BADI>, which tracks rates for ships carrying dry
bulk commodities and is viewed as a good reflection of the health of
world trade, slid to a record low, having fallen 58.8 percent from
its peak this year.
"Many economies in Asia and emerging markets are still not doing
that good. Demand for raw materials remains very weak," said
Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset
Management in Tokyo.
OIL PREDICTIONS
Oil prices were also not far from near three-month lows touched
earlier this week.
Global benchmark Brent futures last stood at $44.17 per barrel,
compared to Monday's low of $43.15, while U.S. crude sagged to just
above $40 a barrel. [O/R]
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Crude futures have already lost around 60 percent of their value
since mid-2014 as supply exceeds demand by roughly 0.7 million to
2.5 million barrels per day to create a glut that analysts say will
last well into 2016.
Market data also suggests oil traders are preparing for another drop
in prices by March, as what is expected to be an unusually warm U.S.
winter dents demand just as Iran's exports hit global markets after
sanctions on the country are lifted.
"Uncertainty is so high in the world's crude markets," said Kang
Yoo-jin, commodities analyst at NH Investment and Securities based
in Seoul. "Prices will have high volatility in 2016 and particularly
in the first half."
In debt markets, 2-year U.S. yields were up for their fourth week in
the last five.
Greek government bond yields rose sharply though, giving up early
falls, as euphoria surrounding the passing of a key reform bill gave
way to concerns about renewed political instability.
Greece's parliament approved the legislation on Thursday to secure
further aid from its international lenders, but Prime Minister
Alexis Tsipras expelled two dissenting coalition lawmakers after the
vote. The government can now count on only 153 votes in the 300-seat
chamber.
Mario Draghi's soothing sounds underpinned the broader euro zone
bond market, however, as core German Bunds, but also French, Italian
and Spain bonds, cruised towards their second straight week of yield
falls.
Neil Williams, chief economist of fund manager Hermes in London,
said that one of the things helping equity markets was the
increasing degree of clarity on what the Fed and ECB will do next
month, as well as China's support plans for its economy.
"China obviously needs watching. When a $10-1/2 trillion economy
which accounts for about a half of the world's commodity demand
slows we need to take notice," Williams said. "But I'm increasingly
reassured that they have the policy buttons to press and are
pressing them."
(Editing by Mark Heinrich)
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