Global economic worries are pressuring stocks anew Friday. European stock markets are called lower, with government bond prices seen up. The euro remains under pressure, with oil and gold also lower.

Equities

European shares are seen lower on Friday, after markets fell Thursday as growth worries fueled sharp losses for industrials and technology stocks. The European Central Bank and the Bank of England left interest rates on hold while they continued to struggle to tame inflation amid flagging growth.

“The slowdown in the euro zone is starting to become more obvious,” said Peter Dixon, equity strategist at Commerzbank. “It’s not good for earnings trends.”

European Central Bank President Jean-Claude Trichet said Thursday that the euro-zone economy is “currently experiencing an episode of weak activity characterized by high commodity prices weighing on consumer confidence and demand, as well as by dampened investment growth.”

The European Central Bank and the Bank of England both decided to leave interest rates on hold this month, as expected. The ECB kept rates at 4.25% and the Bank of England left rates at 5%.

“Despite the growing risk of euro zone recession, the ECB gives no sign at all that it is anywhere near to cutting interest rates given current well above-target inflation and still significant upside risks to medium-term price stability,” said economists at Global Insight.

The ECB also said it will tighten rules regarding how it treats collateral offered by banks participating in the central bank’s money-market operations.

U.S. stock futures are lower on Thursday, after markets plunged on disappointing August sales posted by Nordstrom and other retailers, while balance sheet concerns weighed on big banks like Lehman Brothers and Merrill Lynch.

More broadly, worries that an economic slowdown is spreading worldwide hurt all sectors, most notably commodities- sensitive issues like Caterpillar.

“The most vicious part of the bear has begun – everything down,” said Lorenzo Di Mattia, manager of hedge fund Sibilla Global Fund.

“Economic and equity market meltdown imminent,” wrote Societe Generale analyst Albert Edwards in a review of secondquarter corporate profits.

Asian markets fell sharply Friday, with stocks taking a hit across the board after weak jobless claims and mixed retail data triggered fresh worries about the health of the U.S. economy, leading to a sell-off on Wall Street. In Australia, financials led markets lower.

“No one’s got any conviction,” said a senior institutional trader at a major brokerage. “It’s very difficult.”

“People remain cautious, but you just have to buy the dips in resources,” said a private client adviser, noting that BHP had fallen 12% in the past week.

FX

The euro fell to its lowest level of the year against the dollar Thursday, and the U.K. pound also got crushed, after the European Central Bank downgraded its economic growth forecast for 2009 to as low as 0.6%.

In comments after the ECB left its key interest rate steady at 4.25%, bank President Jean-Claude Trichet noted a slowing in corporate and household demand in countries that use the euro, and said the euro zone economy is stuck in a “trough.”

He said ECB projections now are for euro-zone gross domestic product to expand between 0.6% and 1.8% in 2009. That is down from a June forecast range of 1.0% to 2.0%. Trichet also said this year’s growth could be about 1.4%, down from an earlier forecast of 1.8%.

Following the news, the euro fell to its lowest level against the dollar since December, at $1.4316, while the U.K. pound fell to $1.7629, its lowest since April 2006.

But the European currencies’ declines were more widespread than just against the greenback. The single currency also dropped to a level against the yen unseen since March, at Y153.26, while the pound hit its lowest mark against the yen since 2003, at Y189.27.

“The overall trend is a selling of European currencies against other majors, both the dollar and the yen,” said Hidetoshi Yanagihara, currency strategist at Mizuho Corporate Bank in New York.

Thursday afternoon in New York, the euro was at $1.4320 from $1.4504 late Wednesday. The dollar was at Y107.04 from Y108.13, according to EBS. The euro was at Y153.27 from Y156.83. The U.K. pound was at $1.7687 from $1.7768, and the dollar was at CHF1.1090 from CHF1.1044 Wednesday.

Meantime, the U.S. dollar experienced broad gains Thursday, as investors bet that a global slowdown may impact the U.S. much less than in Europe and elsewhere, based on the idea that the U.S. economy is nearing the end of a down cycle, and thus could begin to rebound.

Also, a slide in global commodity prices as overall demand weakens is expected to be particularly beneficial to the U.S., as it will reduce energy costs and enable consumer spending to take off.

The dollar reached a 12-month peak against the Australian dollar Thursday, and rose 1.5% against the Colombian peso, surpassing the key COP2,000 level for the first time since January. The U.S. dollar also hit highs against Brazil’s real currency that were unseen since April.

Despite its general gains, however, the dollar fell to a six-week low of Y106.97 against the Japanese yen. Analysts attributed this to the sharp drop in U.S. stock markets and indications that slumping global demand will keep depressing commodity prices.

As commodities were surging in recent years, many investors borrowed yen to take advantage of the ultra-low interest rates offered by the Bank of Japan. The investors then used these yen to buy higheryielding currencies such as Brazil’s real and the Australian dollar.

Investments in those currencies paid out high yields because central banks there were forced to raise interest rates to stem economic growth due to the boom in commodity prices, which are key export products in places such as Australia or Brazil.

Now, as commodity prices are sliding, investors are dumping those bets, and are therefore being forced to buy back yen to pay off their original loans. That is a key factor driving the yen higher.

U.S. data out Thursday generally supported the greenback, allowing it to extend its gains against most currencies except for the yen.

A report by the Institute for Supply Management indicated that the U.S. services sector rebounded modestly in August. The ISM’s index of nonmanufacturing activity came in at 50.6 last month, from 49.5 in July and 48.2 in June. August’s reading was above the 49.5 that economists were expecting.

Meanwhile, a report on private sector U.S. jobs showed a decline that met economists expectations, and therefore did not sway investors away from buying the dollar.

Markets now turn their attention to the official monthly U.S. jobs report for August, due Friday, where declines are expected for the eighth straight month.

The euro is again under pressure Friday, although dealers report some buying off its session lows.

On Thursday, the euro fell to its lowest level of the year against the dollar, and the U.K. pound was also crushed after the European Central Bank downgraded its economic growth forecast for 2009 to as low as 0.6%.

Bonds

European government bond prices are seen higher on Friday, after markets clawed their way upward to end in positive territory Thursday.

September bunds were largely stable Thursday on news that the European Central Bank opted to hold rates steady at 4.25%, as expected, but hit intraday highs after ECB President Trichet made comments indicating risks to euro-zone growth.

Treasury prices are higher on Friday, after markets extended this week’s advance on Thursday as a pair of economic reports showed the U.S. employment picture deteriorated in August.

ADP Employment Services said 33,000 private-sector jobs were lost last month.

Separately, the Labor Department said that in the week ended Aug. 30, initial claims for unemployment benefits unexpectedly rose 15,000 to 444,000, the biggest jump in five weeks.

“The job market continues to decline, not a hemorrhage as in past recessions, but rather a slow bleed,” said T.J. Marta, fixed-income strategist at RBC Capital Markets. “That comports with our view that the economy grinds along at a subtrend, but not recessionary, pace.”

Now the markets face the U.S. government’s nonfarm payrolls report Friday. Economists surveyed by MarketWatch forecast the report will show 75,000 jobs lost in August.

In Japan on Friday, prices of government bonds rallied in line with U.S. Treasurys, as investors switched from falling equities. Concerns about Japan’s economy propelled buying.

Commodities

Spot gold is down $1.60 at $793.10 a troy ounce Friday, but is steadying as the dollar pauses in its bounce against the euro, as markets wait for U.S. payrolls later in the day. “The U.S. itself is not improving, it’s the economies around it that are struggling,” said a Sydney-based trader.

Copper futures traded on the Shanghai Futures Exchange are down sharply, following hefty losses overnight in London Metal Exchange threemonth copper. “As market players expect LME 3-month to test support at $7,000 again, the overall bearish outlook weighed on futures prices. And if LME 3-month breaks $7,000, there could be a further slide,” said a trader in Shanghai.

Energy Focus

Oil traded slightly lower on Friday in a market torn between the pressures of falling demand and worries over storms lurking in the Atlantic Ocean, analysts said.

Nymex for October fell 18 cents to $107.71, while Brent fell 10 cents to $106.20.

With more than 95% of U.S. oil production in the Gulf of Mexico still shut after Hurricane Gustav made landfall on Monday, traders were watching two other storms in the Atlantic, said Dave Ernsberger, Asia director in Singapore of global energy information provider Platts.

Analysts say Gustav did little long-term damage to oil industry infrastructure in the Gulf, the source of about one quarter of U.S. oil production.

But two other storms are on the horizon.

“I don’t think traders are going to look to sell aggressively until the remaining threat from these storms has passed,” Ernsberger said.

Date (GMT) Country Event Actual Survey Previous
Sep 4 11:00 United Kingdom BoE Interest Rate Decision 5% 5% 5%
11:45 European Monetary Union ECB Interest Rate Decision 4.25% 4.25% 4.25%
12:15 United States ADP Employment Change (Aug) -33K -30K 9K
12:30 United States Continuing Jobless Claims (Aug 23) 3435K 3425 3423K
12:30 European Monetary Union ECB Trichet’s Speech
12:30 United States Initial Jobless Claims (Aug 30) 444K 430K 429K
12:30 United States Nonfarm Productivity (2Q) 4.3% 3.0% 2.6%
12:30 United States Unit Labor Costs (2Q) -0.5% 0.6% 2.2%
14:00 United States ISM Non-Manufacturing (Aug) 50.6 49.5 49.5
15:00 United States EIA Crude Oil Stocks change -1.9 -0.1M
Sep 5 06:30 Australia Foreign Reserves (Aug) 35.9B
06:50 European Monetary Union ECB Trichet’s Speech
10:00 Germany Industrial Production s.a. (MoM) (Jul) -0.3% 0.2%
10:00 Germany Industrial Production s.a. w.d.a. (YoY) (Jul) 0.9% 1.7%
11:00 Canada Net Change in Employment (Aug) 5.0K -55.2K
11:00 Canada Unemployment Rate (Aug) 6.2% 6.1%
12:30 United States Average Hourly Earnings (MoM) (Aug) 0.3% 0.3%
12:30 United States Average Hourly Earnings (YoY) (Aug) 3.4% 3.4%
12:30 United States Average Weekly Hours (Aug) 33.6 33.6
12:30 United States Nonfarm Payrolls (Aug) -71K -51
12:30 United States Unemployment Rate (Aug) 5.7% 5.7%
14:00 Canada Ivey Purchasing Managers Index (Aug) 62.0 65.5
Sep 7 23:00 Australia RBA’s Governor Glenn Stevens Speech
23:50 Japan Money Supply M2+CD (YoY) (Aug) 2.1%
Sep 8 05:45 Switzerland Unemployment Rate (Aug) 2.3%
05:45 Switzerland Unemployment Rate s.a. (Aug) 2.5%
08:30 United Kingdom Industrial Production (YoY) (Jul) -1.6%
08:30 United Kingdom Manufacturing Production (MoM) (Jul) -0.5%
08:30 United Kingdom Producer Price Index – Input (MoM) s.a (Aug) -0.6%
08:30 United Kingdom Producer Price Index – Input (YoY) n.s.a (Aug) 30.1%
08:30 United Kingdom Producer Price Index – Output (MoM) n.s.a (Aug) 0.4%
08:30 United Kingdom Producer Price Index – Output (YoY) n.s.a (Aug) 10.2%
08:30 European Monetary Union Sentix Investor Confidence (Sep) -15.3
12:30 Canada Building Permits (MoM) (Jul) -5.5%
19:00 United States Consumer Credit (Jul) $14.3B
23:01 United Kingdom BRC Retail Sales Monitor – All (YoY) (Aug) -0.9%
23:01 United Kingdom NIESR GDP Estimate (Aug) 0.1%
23:01 United Kingdom RICS House Price Balance (Aug) -83.9%
Sep 9 01:30 Australia Home Loans (Jul) -3.7%
01:30 Australia Investment Lending (Jul) -0.3%
01:30 Australia National Australia Bank’s Business Conditions (Aug) -5
01:30 Australia Retail Sales (MoM) (Jul) -1%
06:00 Germany Trade Balance (Jul) 19.7B
12:15 Canada Housing Starts s.a (YoY) (Aug) 186.5K
14:00 United States Pending Home Sales (MoM) (Jul) 5.3%
14:00 United States Wholesale Inventories (Jul) 1.1%
21:00 United States ABC/Washington Post Consumer Confidence (Sep 7) -47
22:45 New Zealand Terms of Trade Index (2Q) 4.1%
23:50 Japan Adjusted Current Account (Jul) ¥1290.7B
23:50 Japan Domestic Corporate Goods Price Index (MoM) (Aug) 2%
23:50 Japan Trade Balance – BOP Basis (Jul) ¥252.1B
Sep 10 00:30 Australia Westpac Consumer Confidence (Sep) 9.1%
05:00 Japan Coincident Index (Jul) 103.3%
05:00 Japan Leading Economic Index (Jul) 92.9
08:30 United Kingdom Goods Trade Balance (Jul) -£7.7B
08:30 United Kingdom Total Trade Balance (Jul) -4.4B
11:00 United States MBA Mortgage Applications (Sep 5) 7.5%
21:00 New Zealand RBNZ Interest Rate Decision 7.75% 8.00%
22:45 New Zealand Food Price Index (MoM) (Aug) 0.6%
23:50 Japan Core Machinery Orders (MoM) (Jul) -2.6%
Sep 11 01:00 Australia Consumer Inflation Expectation (Aug) 4.9%
01:30 Australia Employment Change (Aug) 10.9K
01:30 Australia Unemployment Rate (Aug) 4.3%
08:00 European Monetary Union ECB Monthly Report (Sep)
09:00 European Monetary Union Employment Change (QoQ) (2Q) 0.3%
09:45 European Monetary Union European Comission’s Economic Growth Forecasts
12:30 United States Import Price Index (MoM) (Aug) 1.7%
12:30 United States Import Price Index (YoY) (Aug) 21.6%
12:30 Canada International Merchandise Trade (Jul) $5.8B
12:30 Canada New Housing Price Index (YoY) (Jul) 3.5%
12:30 United States Trade Balance (Jul) -$56.8B
18:00 United States Monthly Budget Statement (Aug) -102.8B
22:45 New Zealand Retail Sales (MoM) (Aug) 0.9%
22:45 New Zealand Retail Sales ex Autos (MoM) (Aug) 0%
23:50 Japan Gross Domestic Product (QoQ) (2Q) 1%
23:50 Japan Gross Domestic Product Annualized (2Q) 4%

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