Asian and European markets declined Friday, while commodities also tumbled, as US interest rate speculation fueled an unstable trading environment ahead of next week’s Federal Reserve policy meetings.
China’s Shanghai Shenzhen CSI 300 Index declined 0.3% to 3,347.19, extending its monthly loss to 17.7%. The Shanghai Composite Index was virtually unchanged.
Hong Kong’s Hang Seng Index fell 0.3% to 21,504.37, while Tokyo’s Nikkei 225 closed down 0.2% at 18,264.22.
European markets drifted in the same direction, with Eurozone benchmark STOXX 50 Pr falling 0.5%. The FTSE 100 in London also declined 0.3%, while Frankfurt’s DAX fell 0.5%.
The Federal Reserve will kick-off its two-day policy meetings next Wednesday in Washington. Analysts are divided on whether the Fed will begin raising the benchmark interest rate. While US unemployment is at its lowest level in seven years, stubbornly low inflation and global volatility are likely clouding policymakers’ judgment.
Markets say there is a 34% chance the Federal Reserve raises rates next week, according to the UK Daily Telegraph. That’s slightly above the 30% chance markets gave prior to the release of the nonfarm payrolls report last week.
The vast majority of analysts believe the Federal Reserve will begin tightening before the end of the year.
The US dollar index was virtually unchanged Friday after falling around half a percent in the previous session. The EUR/USD surpassed 1.1300 for the second consecutive day, but was unable to hold gains. The pair was little changed at 1.1280 in the early New York session.
In commodities, oil prices retreated on Friday after Goldman Sachs predicted that crude prices could fall to $20 a barrel.
“The oil market is even more oversupplied than we had expected and we now forecast this surplus to persist in 2016,” Goldman analysts said.
They added, “While not our base case, the potential for oil prices to fall to such levels, which we estimate near $20/bbl, is becoming greater as storage continues to fill.
Global benchmark Brent crude fell $1.15 or 2.4% to $47.74 a barrel on ICE Futures Europe. West Texas Intermediate, the US benchmark, was down $1.27 or 2.8% at $44.65 a barrel.
The oil price collapse could force American producers to make dramatic cuts in 2016. According to the International Energy Agency (IEA), US production could decline by 400,000 barrels a day next year.
The IEA also said that OPEC could face its biggest production cut since the fall of the Soviet Union. The 12-member cartel has been producing in excess of 30 million barrels a day in an effort to squeeze US and North Sea producers.