Global Markets Set for Steep Weekly Drop


Global shares headed for their biggest weekly fall in almost two months on Friday, with markets setting aside evidence of a broad economic upturn to focus on signs the Federal Reserve's stimulus programme will soon end.

Expectations the U.S. central bank will scale back its bond buying next month drove the yield on the benchmark 10-year Treasury note up to 2.78 percent in Europe, sent the dollar up 0.15 percent against a basket of currencies and the euro down to $1.3330.

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"Given that the 10-year U.S. yields are headed towards 3 percent, we think the general direction is for a stronger dollar," said Tom Levinson, FX strategist at ING.

After a mixed start, European shares began to move into line with Thursday's falls on Wall Street. The FTSE Eurofirst 300 index of top companies was down 0.15 percent, on course for its worst week this month.

Earlier in Asia, Tokyo's Nikkei share average dropped 0.8 percent and the MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.4 percent.

MSCI's world equity index, which tracks shares in 45 countries, was little changed overall but set for its worst week since late June when talk of an early cutback in the Fed's $85 billion monthly cash injections surfaced.


The equity selloff this week has come despite growing evidence that the global economy is picking up steam, making some analysts cautious about reading too much into the moves.

"We've seen equity markets crumble because (U.S. Treasury) yields were going up, but they're going down on good news," said Nick Beecroft, senior markets analyst at Saxo Capital Markets.

Evidence of an improving U.S. labour market and a rise in consumer prices - both pointing to a brighter economic outlook - sparked the latest selloff and markets will be closely watching U.S housing starts for July and the University of Michigan confidence index due later for further signs of strength.

Across the Atlantic, surprisingly strong growth in France and Germany dragged the euro zone out of an 18-month recession and data showed the UK recovery gathering momentum.

Growth in China's giant economy also appears to be stabilising, and Japanese exports for July due on Monday are forecast to show the fastest growth in over three years.

"The global economy is improving and even if the Fed does taper in September they are unlikely to move in a significant fashion, so the caution is perhaps overdone," said Chris Beauchamp, market analyst at IG.


The brighter economic picture has boosted demand for industrial metals, sending copper to a 10-week peak of $7,420 a tonne, while zinc has rallied to a five-month high of $1,990 a tonne.

Precious metals like gold and platinum have gained as well, though they could be threatened if the Fed did wind down its stimulus. Gold hit a two-month high of $1,372.51, with Platinum and palladium also at two month highs.

Oil markets were steady with Brent crude trading just above $109 per barrel, consolidating after a week of strong gains as turmoil in Egypt and Libya stoked worries over the security of supplies from the Middle East and North Africa.

Concerns that violence in Egypt could affect the Suez Canal, conduit for up to 3 million barrels per day of oil and a vital seaway for bulk carriers, helped drive Brent to a four-month high on Thursday.