European stock markets fell Friday, with investors mostly wary ahead of next week’s US interest rate decision and oil company shares sliding on a forecast for crude prices to halve yet again.
“Risk appetite has certainly improved this week although we’re still seeing investors hold back a little,” said Craig Erlam, senior market analyst at Oanda trading group.
“One of the key risks all along has been the Federal Reserve and whether it will raise interest rates at the meeting next week.”
London’s FTSE 100 index of leading shares slipped 0.62 percent to close at 6,117.76 points.
In the eurozone, the CAC 40 in Paris dropped 1.04 percent to finish at 4,548.72 points and in Frankfurt the DAX 30 lost 0.85 percent to 10,123.56.
The euro meanwhile rose to $ 1.1331 from $ 1.1275 late on Thursday in New York.
Asian stock markets mostly fell Friday but ended a volatile week in relative calm after China unveiled a series of steps to shore up its economy and reassure investors, although fears of a US rate hike kept nerves on edge.
Global investors are nervously awaiting the US Federal Reserve policy meeting on September 16-17, with uncertainty over whether it will lift interest rates for the first time in nine years or hold fire owing to the recent market turmoil.
Analyst Paul Ashworth at Capital Economics said that on the one hand “the improvement in the (American) economy over the past few years means that it is almost impossible to justify interest rates still being at near-zero.”
“Nevertheless, a number of Fed officials clearly want to use the recent volatility in financial markets as a reason to delay the first rate hike yet again,” he said.
A hike in borrowing costs would likely hinder investment possibilities and also fan a flight of capital back to the United States in search of better returns, to the detriment of emerging markets.
– Oil shares slide –
Investors were also digesting the impact of US producer price data released Friday on the Fed’s decision.
While prices held steady in August from July, analysts had been expecting a dip of 0.1 percent due to the effect of falling energy prices.
Nevertheless analysts said the data showed there is little pressure for a quick return to the Fed’s target level of inflation.
In Europe, official data published Friday showed Germany’s inflation rate at just 0.2 percent in August, still way below the level of just under 2.0 percent that the European Central Bank targets.
The economic slowdown in China and depressed oil prices have pushed down eurozone inflation expectations.
US stocks were mostly lower Friday with petroleum-linked equities especially weak due to a sharp drop in oil prices.
Near mid-day in New York, the Dow Jones Industrial Average was up a slight 0.10 percent, while the broad-based S&P 500 slipped 0.30 percent and the tech-rich Nasdaq Composite Index was down 0.40 percent to 4,771.25.
US oil prices dropped almost three percent after Goldman Sachs (NYSE: GS-PB – news) slashed its price forecast for the commodity amid a global oversupply, saying it could drop to $ 20 per barrel, less than half of its current level.
Dow member ExxonMobil fell 0.7 percent in early trade, while EOG Resources (NYSE: EOG – news) lost 2.0 percent and Apache (NYSE: APA – news) tumbled 2.8 percent.
In London, shares in BP dipped 0.54 percent to close at 333.50 pence and Shell (LSE: RDSB.L – news) ‘s A share gave up 0.12 percent to 1,612 pence.
In Paris, shares in Total (Swiss: FP.SW – news) dropped 0.64 percent to finish at 39.69 euros.
The International Energy Agency also said Saudi Arabia’s policy of protecting its market share will end up squeezing high-cost producers like US shale drillers who next year may face the biggest drop in output in nearly a quarter century.
However cheap fuel is also hooking consumers, with oil demand growth set to hit a five-year high this year, the IEA added.
