Global stocks fell as renewed selling in crude that took oil to a one-month low sank energy shares, while the US Department of Justice's proposal to settle crisis-era claims against Germany's Deutsche Bank rattled the financial sector. The US dollar advanced to its highest since July.
On Wall Street, the S&P; 500 pared a weekly gain as lenders and energy producers slid more than 0.8 per cent. The fact it still eked out a gain was due to Apple's best week in almost five years, which helped prop up the index.The Stoxx Europe 600 Index capped its worst week since June, with Deutsche Bank plunging 8.5 per cent after saying the DOJ is seeking $US14 billion to settle claims of mortgage-backed securities sold during the housing boom. Russia's ruble and bonds slipped after its central bank cut interest rates. The greenback climbed amid US inflation data. Germany's 10-year yields fell below zero for the first time in a week.
Volatility returned to global financial markets in the week as central banks signal they are rethinking their approach to the monetary stimulus that's bolstered assets from stocks to bonds for the past half decade. Yield curves steepened, commodities prices tumbled and European shares headed for the worst week since June. American assets held up as investors moved into the dollar and US stocks before next week's policy decisions from the Federal Reserve Bank and the Bank of Japan.
"Oil heading toward below the 40's is waking everyone up that it's probably not going to recover fully," said Brian Frank, portfolio manager at Key Biscayne, Florida-based Frank Capital Partners. "You've got Deutsche Bank, which is scaring everybody. People are getting fed up with central banks. There's a lot going on today."
Apple surges
The S&P; 500 fell 0.4 per cent to 2139.02 at 4 pm in New York, trimming a weekly advance to 0.5 per cent. Trading in US equities surged Friday because of a quarterly event known as quadruple witching, when futures and options contracts on indexes and individual stocks expire.
Apple. The S&P; 500's biggest component, rallied 11 per cent in the five days, the most since October 2011, to add more than $US63 billion in value amid a surge in demand for the new iPhone. Apple alone added 7 points to the benchmark index.
S&P; Dow Jones Indices, overseer of the US equity benchmark, will implement its quarterly index rebalancing after the close, including the first reboot of S&P; 500 group weights in almost two decades. That will separate real estate investment trusts from the financial industry, creating 11 top-level groups.
A report today showed the cost of living in the US rose more than projected in August, indicating that inflation continues to move closer to the Fed's goal. The odds for a Fed hike at its meeting on September 21 held at 20 per cent.
"The market is trading off of the Fed right now," said Brent Schutte, who helps oversee $US90 billion as chief investment strategist at Northwestern Mutual Wealth Management Company. "When the Fed starts pulling liquidity back, that increases volatility which will be heightened in the next six to nine months."
The Stoxx Europe 600 Index slipped 0.7 per cent, capping a weekly decline of 2.2 per cent, the most since June. Lenders dragged the gauge lower Friday, as Royal Bank of Scotland and Credit Suisse fell more than 4 per cent, along with deep losses at some Italian and Portuguese firms.
The MSCI Asia Pacific Index was up 0.6 per cent, trimming this week's drop to about 2.2 per cent. Philippine stocks dropped by the most in three months. Markets in mainland China, Taiwan, Malaysia, South Korea and Hong Kong were closed for holidays.
Currencies
The Bloomberg Dollar Spot Index rose to its highest level since July after the inflation report. The dollar strengthened 0.8 per cent to $US1.11532 per euro and was little changed at 102.31 yen. Just over half of economists surveyed by Bloomberg anticipate the BOJ will ease monetary policy further on September 21, with an interest-rate cut seen as the most likely option.
The ruble fell 0.3 per cent as cheap oil and increased volatility in emerging markets earlier in the week led investors to avoid riskier assets. The central bank in Moscow cut its benchmark rate for the first time since June.
The Mexican peso fell as much as 2.2 per cent to an intraday record, outpacing its its peers as Hillary Clinton's slide in polls in the presidential race spooked traders. The currency fell to 19.6931 per US dollar, extending losses this week to 4 per cent.
Commodities
Crude fell 2 per cent to settle at $US43.03 a barrel in New York, extending its weekly slide to 6.2 per cent. OPEC members Libya and Nigeria, whose supplies have been reduced by domestic conflicts, are preparing to boost exports within weeks. The oil surplus will last longer than previously thought as demand growth slumps and output proves resilient, the International Energy Agency said Tuesday.
Copper prices posted the biggest weekly gain in two months as the metal that's lagged far behind its peers this year gets a boost from signs that demand may strengthen in China, the biggest consumer. Zinc - the top metals performer of 2016 - posted its first back-to-back weekly drop since January.
Bonds
The yield on 10-year Treasury notes was little changed at 1.69 per cent, poised to end the week higher by three basis points. Long-term bonds in the U.S. took a knock this week, lifting the 30-year yield to levels last seen in June, amid speculation monetary loosening around the world has about run its course.
Japan's 30-year yield climbed to a six-month high during the week and rates on short-term securities fell on bets the BOJ will adjust policy to steepen the yield curve.
Russian bonds headed for their biggest weekly decline in two months after the Bank of Russia said its 50 basis-point rate cut on Friday is the last of the year because any more would risk rekindling inflation. The outlook on Russia's junk credit rating was raised by S&P; Global Ratings with the end in sight for the nation's longest recession in two decades.
Bloomberg
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