A fourth straight day of falls nudged stocks toward two-month lows on Thursday, as ricocheting commodity prices, a limp dollar and emerging market uncertainty added to a jittery global mood.
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 , climbed to its highest in almost a month.
European shares 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 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 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 and U.S. WTI 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.
They found support after U.S. inventories 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 when he said the bank stood ready to take additional action if necessary.
In Asia overnight, MSCI’s broadest index of Asia-Pacific shares outside Japan shed 0.1 percent.
Japan’s Nikkei closed down 1.3 percent at a five-week low and Australian shares ended the day down 0.8 percent.
Chinese shares also gave up early gains, with the 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.
Emerging markets had a host of difficult news to deal with.
South Africa’s rand 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 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. 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 employment numbers notched the strongest two-month total for 28 years and pushed unemployment to a 19-month low of 5.8 percent.