Gold pressured as US rate hike expectations drag

31 Aug 2015 | Author: | No comments yet »

Another rough markets week?.

London – Fears over the health of the Chinese economy kept world markets on edge last week and China will remain in focus, along with the question of whether the Federal Reserve will raise interest rates next month. Confusion over policy direction in the world’s two largest economies sent global markets into turmoil early last week, with the wildest price swings in years pushing investors to the exits.

Markets will therefore be watching business surveys, factory orders and trade data from the world’s largest economy as well as the employment numbers due on Friday. “The week finishes with non-farm payrolls for August, typically the biggest market mover globally, and definitely on the Fed’s radar given ‘unemployment’ is already close to full employment and the Fed looking to gauge whether there is ‘some’ further labour market improvement,” economists at National Australia Bank said. European shares looked set to follow Asian shares and US stock futures lower on Monday, with Germany’s share index expected to open down 1.35 percent and France’s CAC 40 likely to fall 1.39 percent, according to IG. The UK market is closed for a public holiday. “This is a market that is walking on glass; China seems to be the central theme feeding into a lot of these things but today the focus is very much on US interest rates again,” said, James McGlew, executive director of corporate stock broking at Argonaut in Australia. MSCI’s broadest index of Asia-Pacific shares outside Japan shed more than 1 percent and is set to fall 10 percent this month, its worst monthly drop since May 2012.

They have plunged more than 40 percent since mid-June. “A pull back in the market was to be expected as some investors are taking profits after the two-day rally,” wrote Gerry Alfonso, director of Shenwan Hongyuan Securities, referring to a brief rebound late last week. Speaking at the U.S. central bank’s annual gathering in Jackson Hole, Wyoming, Fisher emphasized he was not saying what action the Fed might take at its September meeting but analysts took his comments to mean he saw the economy moving close to satisfying the Fed’s conditions for a hike. The European Central Bank is expected to keep a steady hand when it meets on Thursday, days after data are likely to show there is still very little inflation in the currency bloc.

Almost half a year since the ECB started pumping 60 billion euros a month of fresh cash into the economy, annual inflation data, due on Monday, will probably still show prices rose only 0.1 percent in August – nowhere near the bank’s 2 percent target ceiling. There is a growing chance the ECB will extend its stimulus programme beyond the planned completion in September 2016, and if inflation data misses expectations that likelihood will only increase.

Prospects of higher interest rates and returns in the United States combined with China’s slowdown have diminished the appeal of emerging markets as investors have dumped riskier assets. Investors sold $5.9 billion of emerging market assets between Aug. 20-26, a sharp increase from $1.5 billion the week earlier, according to Nomura fund flows data.

An index for Asian high-yield credit has fallen sharply this month compared to a relatively steady performance in the investment grade index, according to Thomson Reuters data. The dollar eased 0.6 percent to 121.03 yen after rising to the week’s high of 121.76 on Friday following the Fed officials’ comments that kept prospects of a September hike alive. US crude was down 1.3 percent at $44.62 a barrel after jumping more than 6 percent on Friday on frenetic short-covering fuelled by violence in Yemen, a storm in the Gulf of Mexico and refinery outages.

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