A bigger-than-expected fall in Chinese inflation followed disappointing trade figures over the weekend and underlined the problems in an economy that has driven world growth for a decade.
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MSCI (NYSE: MSCI – news) ‘s all-country world index was down 0.3 percent, while European shares closed up 0.2 percent, supported by a weak euro.
The dollar rose towards a seven-month peak against a basket of major currencies on Tuesday, bolstered by widening rate differentials in favor of US Treasuries on expectations the Federal Reserve will raise interest rates next month.
“After share prices have recovered quite a lot (last month), their rally is coming to a halt for now as markets are trying to price in a Fed rate hike in December”, said Takeru Ogihara, chief strategist at Mizuho Trust Securities.
The unemployment rate fell to a seven-and-a-half year low of 5.0%. Against the yen, the dollar was buying 123.16 yen, steady on the day and nor far from the previous session’s 2-1/2-month high of 123.60.
Such a divergent policy outlook helped to cap the euro and lift the dollar, although the USA unit slipped a tad on Monday on profit-taking after sharp gains on Friday.
The euro erased an advance versus the dollar amid speculation the European Central Bank is moving closer toward cutting its deposit rate when it meets next month. That could include a cut to the already negative deposit rate, the rate the ECB charges banks to park money with it, as well as an expansion of its existing 1 trillion euro ($1.1 trillion) asset purchase program. “That’s what many people are citing as the reason the euro got crushed, in comparison to other currencies”, said Bart Wakabayashi, head of foreign exchange for State Street Global Markets in Tokyo.
Elsewhere a firmer dollar put pressure on precious metals.
Copper fell to a six-week low of $4,953 per tonne, hit also by concerns about demand from China.
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In the oil market, Brent crude, the global oil benchmark, was up 0.25 cents at $47.44 a barrel, having fallen for four trading days in a row.
