12/04/17

European stocks firmer after mixed Asia session

Geopolitical anxiety is continuing to underpin “haven” assets, while caution over corporate profits leaves stock markets rangebound, reports Financial Times.

Russia’s dispute with the west over Syria; heightened tensions on the Korean peninsula, after US president Donald Trump said he was prepared to act unilaterally to rein in Pyongyang; and fresh caution about the French election as far-left candidate Jean-Luc Mélenchon gains in the polls, are all cited as causes of investor concern.

Add to this thin trading as the Easter break approaches, along with wariness that the US first-quarter earnings season may struggle to justify current stock market valuations, and investors may be forgiven for adopting a tentative stance.

US index futures suggest the S&P 500 will slip 3 points to 2,350.8 when trading gets under way later in New York.

The Wall Street stock barometer has witnessed some intraday wobbles of late, but for the last 10 sessions it still has closed within just a 15-point range — between 2,353 and 2,368. Bulls have been buying on the dips but seem wary of pushing back towards the record of 2,396 hit at the start of March, ahead of the big US bank stocks like JPMorgan, Citigroup and Wells Fargo presenting their results on Thursday.

This caution is encouraging investors to buy portfolio protection, with the CBOE Vix index, a volatility measure known as Wall Street’s fear gauge, closing on Tuesday at 15.07 — a five-month high.

Meanwhile, classic “haven” assets are benefiting from the international tensions. Gold is down $1 to $1,273 an ounce, but earlier in the day brushed $1,280, the bullion’s most expensive price since November. The Japanese yen in early Asia action hit ¥109.33 per dollar, its strongest since November 18, though it is currently little moved on the day at ¥109.66.

“With a complicated mix of global factors prompting increased risk aversion, it is no surprise that the yen is performing well,” said Derek Halpenny. European head of global markets research at MUFG.

Similarly, the US 10-year Treasury yield, which moves opposite to the bond price, is down 1 basis point to 2.30 per cent, near its lowest in five months, while equivalent maturity German Bunds hold at just 0.21 per cent as traders seek safety amid the French election jitters.

What to watch

The pound is up just 0.1 per cent to $1.2497 and 10-year gilt yields are steady at 1.06 per cent after jobs data showed UK unemployment stayed at 4.7 per cent, as expected, but wage growth slowed to its weakest in seven months.

The Bank of Canada will reveal its latest monetary policy decision at 15:00 BST. Analysts expect interest rates to remain at 0.5 per cent, and ahead of the accompanying statement the Canadian dollar is 0.1 per cent softer at C$1.3336 per greenback.

Equities

Wall Street’s rally off session lows on Tuesday is helping the pan-European stock market climb 0.2 per cent, helped by energy groups but hindered by miners as copper prices hit a two month trough.

Earlier in Asia, Tokyo bore the brunt of a stronger yen, with the Topix index shedding 1 per cent as energy and financials struggled.

Toshiba dropped 1 per cent a day after warning of “substantial doubt” about its ability to stay in business.

Hong Kong’s Hang Seng index was up 0.9 per cent, while on the mainland the Shanghai Composite fell 0.5 per cent as recently rallying infrastructure stocks lost momentum.

Forex

Trading across major currencies is fairly muted on Wednesday. The dollar index, which measures the buck against a basket of its peers, is up less than 0.1 per cent to 100.74 as the euro eases 0.1 per cent to $1.0596.

The South African rand is up 0.3 per cent to 13.7485 per dollar, adding to the previous session’s 1 per cent rally that came following a heavy sell-off in response to economic policy jitters and a ratings downgrade.

In South Korea the won recovered from a morning dip and was up 0.5 per cent, firming to 1,138.74 per dollar after the country’s finance ministry said it would take action if market instability increases in the face of rising geopolitical tensions.

Commodities

Oil prices are continuing their rally, with Brent crude up 0.7 per cent to $56.60 a barrel, the benchmark’s most expensive level since March 7.

West Texas Intermediate, the main US contract, is up 0.5 per cent to $53.69, also its highest price in five weeks.

Brent fell below $50 a barrel on March 22 amid fears that Opec production cuts were being counteracted by increased US drilling. But oil bulls are back in control after the US missile strike on Syria highlighted the potential for supply disruption in the Middle East and after Opec confirmed its March output contraction.