LONDON: Commodity markets were clobbered and stocks and bonds were also in the firing line on Monday as expectations for a first increase in U.S. interest rates next month in almost a decade pushed the dollar to a seven-month high.
Oil fell more than 3 percent and industrial metals copper and nickel plunged, while the euro sagged to a seven-month low as the prospect of more policy easing by the ECB in Europe was compounded by a security lockdown in Brussels.
European stocks were down 0.5 percent despite better-than-expected euro zone data as the slump in commodities and the unrelenting appreciation of the dollar dominated sentiment at the start of the week.
Copper slumped to a fresh six-and-a-half year low and nickel tumbled 4 percent to its lowest since 2003 as traders bet metals prices still had further to fall, given slowing factory demand in China.
Oil prices sank again, with U.S. crude off $1.30 or 3 percent at $40.60 a barrel. Brent lost 90 cents or 2 percent to $43.80.
That sent commodity-linked currencies like the Russian rouble tumbling and even safe-haven gold was not immune as it hovered around $1,070.56 an ounce, having touched its lowest level in nearly six years.
"The biggest factor here is the dollar," said Hans van Cleef a senior energy economist at ABN Amro in Amsterdam. "It is having an impact on all major commodities at the moment."
"More and more investors are watching it (commodities sell-off) and sentiment therefore gets more jittery."
The dollar's fresh push saw the euro hit a seven-month low overnight, though the common currency managed to fend off the market's first attempt at pushing it below $1.06.
The euro was given some help as purchasing manager data showed euro zone business activity picking up at its fastest pace since mid-2011, partly thanks to the currency's recent weakness.
That also helped Europe's main bourses claw back some of their early losses, although the woes around commodities ensured miners and oil and gas firms remained the worst performers.
The healthcare sector was also in focus after Pfizer secured formal board approval on Sunday for its more than $150 billion acquisition of Botox maker Allergan, that will create the world's biggest drugmaker.
BELGIUM LOCKDOWN
Fears of further militant Islamist attacks lingered in Europe. Soldiers patrolled the streets of Brussels for a third day as the hunt continued for a man believed to have masterminded this month's Paris attacks.
Belgian shares fell 0.5 percent at the open, though they were broadly in line with the overall market and they had largely recovered by 1000 GMT.
ECB stimulus hopes helped underpin the region. The head of the European Central Bank, Mario Draghi, last week offered the strongest hint yet that the ECB will unveil fresh measures at its Dec. 3 policy meeting.
Its stance is in stark contrast with that of the U.S. Federal Reserve, which seems set to lift rates in December for the first time in a decade.
As a result the premium offered by U.S. 2-year paper over the German equivalent yawned to 130 basis points, the widest since 2006. Overall, though, euro zone yields edged higher.
Against a basket of currencies the dollar firmed 0.3 percent to 99.881, while also rising to 123.19 yen.
MSCI's broadest index of Asia-Pacific shares outside Japan ended off 0.2 percent. South Korea's main index gained 0.7 percent while Australian stocks added 0.4 percent. Japan's Nikkei was closed for a holiday.
"Interestingly, (equity) markets are treating the prospects of policy divergence reasonably well," said Jo Masters, a senior economist at Australia and New Zealand Bank.
"But with two of the world's major central banks about to head on divergent policy paths, can such smooth sailing continue over the months ahead?" they wondered. "Increased policy tension is likely to mean that volatility remains elevated."
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