LONDON: Oil prices and world stocks fell further on Friday ahead of a key U.S. non-farm payrolls report that could fuel concerns over global growth that have soured investor appetite for riskier assets.
Silver headed south again after a small pullback earlier from a record one-day plunge overnight, when investors scaled back risky positions in a broad-based sell-off of commodities as concerns snowballed about a hitch in the U.S. economic recovery and a slowdown in China.
As gold retained its safe-haven status, rising nearly one percent, one fund manager said commodities could be in for further near-term declines as latecomers to the rally unwind their long positions.
U.S. crude futures fell by as much as $5 to $94.80 a barrel after their second largest single-day loss in the previous session due to a washout of overstretched long positions arising from unrest in North Africa and the Middle East, traders said.
This week's rout in commodity prices and patchy U.S. and European economic data have made investors nervous about holding big bets before the April U.S. jobs report due later in the day.
U.S. non-farm payrolls data is expected to show employers added 186,000 jobs in April, with private jobs up 200,000, but the risks of a weaker-than-expected reading increased after data on Thursday showed weekly jobless claims unexpectedly jumped to an eight-month high. The ADP private hiring also came in below forecasts earlier in the week.
"Ahead of today's payrolls, the market might be a bit cautious. The employment component of the ISM survey registered a bit of a drop and the ADP figures were weak, and the combination has encouraged people to think that 200,000 for the private payrolls may be a little rich," said Mike Lenhoff, chief strategist at Brewin Dolphin.
Before this week's decline, world stocks had risen more than eight percent this year as investors grew confident strong corporate earnings, robust growth in emerging markets and still ample liquidity would keep global growth at a reasonable level. The MSCI world equity index fell another 0.4 percent on Friday, pulling further away from three-year highs hit last week. The Thomson Reuters global stock index was down around a third of a percent.
The FTSEurofirst 300 index fell 0.1 percent while emerging stocks were down 0.7 percent and have lost 4 percent this week.
Shares outside Japan held early losses and were down 0.4 percent. For the week, that index was set to drop more than 3 percent.
INFLATION EXPECTATIONS
The sharp wave of risk reduction across markets boosted U.S. Treasury and benchmark euro zone government bond prices. The 10-year U.S. Treasury yield dipped to 3.16 percent before rising by two basis points in European trade. It has fallen more than 40 basis points in less than a month.
The four-day slump in commodities has also spurred bond markets to scale back inflation expectations, with the composite euro zone five-year breakeven rate falling to 2.02 percent, down from near 2-1/2 peaks above 2.31 percent reached early last month.
"A lot of this (scaling back of inflation expectations) is corrective of a move which was probably a little bit too strong in the first place," said Michael Oman, a strategist at Barclays Capital.
"The market was probably priced to reflect expectations of ongoing energy price strength and yesterday's move in commodities was a bit of a wake-up call that you can't expect the trend to continue indefinitely.
You have to consider the economic implications of commodity strength and that would filter through eventually to activity."
Spot silver and Brent crude were battered by record single-day falls on Thursday.
Silver plummeted more than $12 to $109 at one point after another margin hike by the CME Group on its COMEX silver futures increased the cost of the trading the metal, dragging gold down 3 percent and triggering a brutal sell-off in other commodities.
Commodity markets are poised for a further near-term drop as speculators and those who joined the rally in its late stages unwind long positions, Tetsu Emori, a commodities fund manager at Astmax Co in Tokyo.
It was the best performing asset class in 2011 until last week, posting gains of more than 10 percent.
The euro was steady at $1.4532 after falling nearly 2 percent on Thursday to $1.4510 but further falls in oil prices and on equity markets left investors wary of buying back into riskier assets.
The dollar slipped, retracing after scoring its biggest one-day rise in nearly nine months versus the euro on Thursday after the European Central Bank signaled it won't raise interest rates in June.
Analysts said a weaker non-farm payrolls report could weigh futher on the greenback.
"Any reading that is short of the consensus would confirm the status quo, that the Federal Reserve does not have a clear timeline for when it will start removing stimulus and for this reason we expect dollar weakness to continue," said Stephan Maier, currency strategist at Unicredit in Milan.
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