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 While next Thursday's eagerly anticipated decision from the Federal
Reserve hangs very much in the balance, meaning the potential for
market volatility remains high, stocks and bond yields have moved
higher this week.
Reflecting the lack of uniform market thinking as the big day
approaches, however, the dollar rose on Friday, although was on
track for its first weekly decline in three.
"With a week to go until the Fed makes its decision, markets are
likely to remain on edge with volatile moves possible in either
direction," said Jasper Lawler, market analyst at CMC Markets.
Around midsession in Europe on Friday, shares were lower. The
FTSEuroFirst index of leading 300 shares was down 0.7 percent at
1,405 points, but still up around 1 percent on the week, its best
performance since mid-July.
Britain's FTSE 100 was down 0.4 percent at 6,132 points,
Germany's DAX was down 0.8 percent at 10,135 points and
France's CAC 40 was off 0.7 percent at 4,565 points.
U.S. stock futures slipped 0.3 percent, suggesting a weaker opening
on Wall Street. The S&P 500 has bounced back from last week's 3.4
percent fall, however, and is well on track for its best week since
July.
MSCI's broadest index of Asia-Pacific shares outside Japan slipped
0.2 percent, but was on for a rise of more than 2.5 percent on the
week, its first weekly rise since mid-July and biggest weekly gain
in five months.
Chinese shares ended another choppy week little changed on Friday.
The Shanghai Composite Index <.SSEC> rose 1.2 percent on the week, a
welcome relief for investors after it had lost around 20 percent in
the preceding three.
Chinese industrial output, retail sales and investment data on
Sunday will give clues on whether the world's second-largest economy
is continuing to lose momentum and help set the tone for markets
next week.
GOLDMAN CUTS OIL FORECASTS
U.S. data on Thursday suggested the labor market was gaining
momentum in early September as fewer Americans filed for weekly
unemployment benefits. But a separate report showed weak inflation,
further clouding the outlook for what the Fed will decide to do at
its Sept. 16-17 policy meeting.
Considering volatile global equities, increasing uncertainty over
China and emerging markets, and other major central banks around the
world easing policy rather than tightening, it could be a high bar
for the Fed to raise rates next week.
"Our analysis suggests that the recent tightening in financial
conditions, if maintained going forward, would be equivalent to
around three (rate) hikes," Goldman Sachs U.S. economists wrote in a
note to clients.
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"Given that markets have done much of the Fed's 'dirty work', we
expect Fed officials to be on hold at least until December."
In currencies the dollar was up slightly against the yen at 120.70
and the euro was down 0.1 percent at $1.1265, meaning the dollar's
trade-weighted index was up slightly at 95.60.
The benchmark 10-year U.S. Treasury yield was down nearly 3 basis
points on the day at 2.195 percent, but up 6 basis points so far
this week.
The two-year yield, which is more sensitive to interest rate moves
and expectations, was flat on the day at 0.735 percent but up
slightly on the week. On Wednesday, it hit a three-month high of
0.766 percent.
In commodities, oil prices fell after Goldman Sachs cut their
forecasts and said U.S. oil could fall as low as $20. [O/R]
U.S. crude was down 2.5 percent at $44.75 a barrel, after rallying 4
percent earlier on U.S. Energy Information Administration data that
showed strong demand for gasoline.
Brent , which gained 2.8 percent in the previous session, was down
2.4 percent at $47.70.
Spot gold slipped to $1,106 an ounce, on track to drop more than 1
percent for the week, its third straight weekly fall.
(Reporting by Jamie McGeever; Editing by Jermey Gaunt; To read
Reuters Global Investing Blog click on http://blogs.reuters.com/globalinvesting;
for the MacroScope Blog click on http://blogs.reuters.com/macroscope;
for Hedge Fund Blog Hub click on http://blogs.reuters.com/hedgehub)
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