Asian shares were set to hold on to this week’s gains, while the dollar took a breather on Friday after stepping back from seven-month highs as investors grappled with the prospects of higher US borrowing costs and slower global economic growth.
Commodity prices were pressured, with copper near 6-1/2-year lows and a major sea freight index hitting its lowest level on record, underscoring worries over slackening world demand.
MSCI’s broadest index of Asia-Pacific shares outside Japan was almost flat on the day, though it held on to gains of 1.7 percent so far this week.
Japan’s Nikkei retreated from three-month highs hit on Thursday, falling 0.5 percent as the dollar dipped versus the yen though it is likely to post its fifth consecutive week of gains.
Mainland Chinese shares also held flat, with Shanghai composite staying near a three-month high struck on Tuesday.
“Share prices are boosted by ample liquidity. Chinese authorities are desperate to support share prices while the European Central Bank has also clearly indicated an easing in December,” said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
“People who sold shares in the summer on concerns about a slowdown in China are buying back. But they are turning a blind eye to the poor state of economic fundamentals,” he said.
A case in point is copper, which is seen as a good gauge of the global economy because of its wide industrial use.
It slumped to a 6-1/2-year low of $4,573.50 per tonne on Thursday and last stood at $4,598.50, down 4.7 per cent so far this week.
That would mark the biggest weekly fall since January if sustained by Friday’s close, driven by persistent worries that supply cuts won’t be enough to offset the pressure on prices caused by weak demand in top user China.
The Baltic Index, which tracks rates for ships carrying dry bulk commodities and is viewed as a good reflection of the health of world trade, fell to a record low, having fallen 58.8 per cent from its peak this year.
“Many economies in Asia and emerging markets are still not doing that good. Demand for raw materials remain very weak,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.
Oil prices were also not far from near three-month lows hit earlier this week.
Global benchmark Brent futures last stood at $44.33 per barrel, compared to Monday’s low of $43.15.
The dollar licked wounds after having weakened across the board on Thursday following four straight sessions of gains, as investors took profits after the gains driven by widespread expectations of a US Federal Reserve interest rate increase next month.
The dollar index stepped back from Wednesday’s seven-month high of 99.853 to stand at 99.098.
The euro bounced back to $1.0718 after having hit a seven-month low of from $1.0617 on Wednesday. The dollar slipped to 122.96 yen from Wednesday’s three-month high of 123.77.
Long-dated U.S. debt yields also dipped, with the 30-year yield hitting a two-week low of 2.988 per cent on Thursday. It last stood at 3.011 per cent.
At the shorter end, money market futures continue to price in around a 70 per cent chance of a rate hike by the Fed in December, based on the assumption that the Fed Fund rate will trade around 0.375 per cent after the Fed lifts the target range to 0.25-0.50 per cent.
Many market players think the Fed is almost certain to raise interest rates next month for the first time in almost a decade.
Fed Vice Chairman Stanley Fischer said on Thursday the Federal Reserve has telegraphed its imminent interest rate hike so well that central bankers elsewhere have even begun to get impatient about it.
“In the relatively near future probably some major central banks will begin gradually moving away from near-zero interest rates,” Fischer also told the San Francisco Fed’s biannual Asia Economic Policy conference.