Shares slide before US jobs data

London (Reuters): World shares slid towards their fourth weekly loss in the last five on Friday, as a boost from a supportive-sounding European Central Bank gave way to caution before US jobs data.

Concerns about China consigned Asian shares to a seventh straight weekly loss and Europe’s markets fell 2% after rising almost 2.5% on Thursday.

“Markets are worried about a too strong US job report which could spark the Fed into hiking rates in September,” said head of research at BNP Paribas Fortis Global Markets, Philippe Gijsels.

Wall Street was set to follow suit, with index futures pointing to a fall of 1.1% in the S&P 500.

Thursday’s gains in Europe were driven by ECB President Mario Draghi saying the bank was prepared to expand its 1 trillion euro stimulus program aimed at lifting growth and inflation in the euro zone.

But Friday’s focus was on whether US jobs data due at 1230 GMT would keep the Federal Reserve on track to raise its record low interest rates later this year.

Economists polled by Reuters expect the US economy to have produced 220,000 new jobs last month, continuing the robust employment creation of the past five years. Average hourly earnings are predicted to have risen by 0.2%, as they did in July.

A strong reading will keep alive chances that a first Fed hike in almost a decade could come this month. Following a tough last month for global markets however, markets now see December or early next year as more likely.

“We were until recently firm Septemberists but now it’s very much on a knife edge,” said Luke Bartholomew at Aberdeen Asset Management in London.

“Market volatility has shaken them (Fed policymakers) somewhat...so seeing that markets are very fragile, do they want to shock them with hiking now? I think that is a very live debate now.”

In the foreign exchange markets, the dollar fell 0.8% against the yen to 119.10 as the safe-haven Japanese currency capped a third week of gains.

The euro was fractionally stronger at $ 1.1130 having been driven to a two-week low of $ 1.10875 and a four-month low against the yen by Draghi’s talk of more money printing.

The ECB also cut its growth and inflation forecasts and warned of possible further fallout from China. Coupled with a potential delay to a Fed move, euro zone bond yields fell further on Friday, with German 10-year yields, hitting their lowest level in nearly a week at 0.69%.

“Fundamentally market reaction to US data can be short-lived. In the medium-term perspective ECB QE matters more than US non-farm payrolls so we think the bias is bullish for (German) Bunds,” said BNP Paribas strategist Patrick Jacq.

 

Crisis proportions

Strains in Asia stayed close to the surface despite hard-hit Chinese markets being closed for a second day for a holiday.

MSCI’s broadest index of Asia-Pacific shares outside Japan chalked up its worst weekly losing streak since 2011 as it ended down 0.9% on the day and more that 4% on the week.

Japan’s Nikkei fared even worse. It fell 2.5% on the day and 7% for the week as it slumped to a seven-month low.

There was so sign of relief for the region’s emerging market currencies either.

Bank Negara Malaysia was spotted intervening to stem the ringgit’s weakness as confidence continued to be hit by a corruption scandal swirling round Prime Minister Najib Razak.

The Institute of International Finance warned the current slump in emerging market stocks -- down 40% since April -- and currencies had now reached “crisis proportions”.

In commodities markets, which have been battered by fears of a hard landing in China, trade remained highly volatile.

Brent crude slipped 0.4% to $ 50.47 per barrel although it was clinging to a second week of modest gains.

Copper fell 1.6 percent to $5,160 per tonne after surging to $5,314 on Thursday, a more than three-week high, as investors closed out positions before the U.S. jobs data.