Thursday, 9 June 2016

World stocks struggle to build on highs as Europe weighs

World stocks struggled to build on six-week highs on Wednesday after mixed Chinese data, weighed down by a weaker session in Europe and political concerns that sent Germany's 10-year government bond yield to a record low.

European shares fell on Wednesday, with the pan-European FTSEurofirst 300 .FTEU3 index down by 0.4 percent by 1044 GMT, after two days of gains pushed the index to a one-month high.

"After 48 hours of gains due to fading expectations of a rate increase in the U.S. this summer, the market is seeing a correction even though there isn't much conviction," said Anthilia Capital fund manager Giuseppe Sersale.

Wall Street looked set to open flat to higher on Wednesday with futures on the Dow Jones S&P ESc1 and Nasdaq up around 0.1 percent.

The MSCI world equity index  which tracks shares in 45 nations, was up 0.09 percent after rising in the previous session to the highest intraday level since April 21, helped by buoyant crude oil prices and a dovish tone from U.S. Federal Reserve Chair Janet Yellen.

Asian shares edged up on Wednesday, erasing earlier losses, as investors weighed May Chinese imports that beat predictions against worse-than-expected exports. The MSCI's broadest index of Asia-Pacific shares outside Japan  added 0.3 percent.

Chinese dollar-denominated exports declined 4.1 percent in May from a year earlier, compared with an expected drop of 3.6 percent. Imports fell 0.4 percent, less than the predicted 6 percent, and the smallest decline since they turned negative in November 2014. China's trade surplus is forecast to hit $50 billion in May.

Despite the weak exports, the Chinese central bank said on Wednesday it still expects the economy to grow by 6.8 percent this year.

Anthilia's Sersale said the Chinese data were not that bad overall but cautioned that sentiment could be weighed by ongoing concerns surrounding the outcome of a UK vote on whether to stay in the European Union later this month.

Nervousness over Britain's referendum on its EU membership on June 23 helped send Germany's 10-year government bond yield, the benchmark for euro zone borrowing costs, to a record low. The yield on the 10-year bund fell to below 0.04 percent.

"We are a few basis points away from negative territory and given the Brexit vote later this month, that may give it a final push, it is quite likely we will over the next couple of weeks dip into negative territory," said Martin Van Vliet, senior rates strategist at ING.

The Bund rally was unchecked even by the potential inflationary impact of an oil prices rally and uncertainty over whether the ECB's corporate bonds purchase programme, which started on Wednesday, could undermine the bid for government debt.

Brexit concerns also continued to affect the pound. Sterling was steady at $1.4545 after having gained roughly 0.8 percent on Tuesday after two polls gave a narrow lead to the "Remain" camp.

But waning expectations that the Fed will raise interest rates anytime soon following a disappointing labour market report week sent the dollar to a five-week trough against a basket of currencies.

The dollar index, which tracks the greenback against a basket of six rivals, edged down 0.14 percent to 93.686 .DXY after dropping as low as 93.680, its lowest since May 6.

The weaker dollar, along with the strong Chinese import data, boosted copper prices, while aluminium climbed to the highest levels in nearly a month.

Meanwhile, U.S. crude oil prices jumped to the highest level in almost 11 months on Wednesday, rising for the third consecutive session, buoyed by ongoing supply disruptions in Nigeria and strong Chinese oil demand data.

U.S. crude futures climbed 1.3 percent to $51.02 a barrel, after reaching $50.67 earlier, after rallying to above $51 a barrel for the first time since late July 2015.

A weaker dollar supports fuel demand in the rest of the world as it makes dollar-traded oil imports cheaper.


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