Global equities and oil prices at 3-month highs, no love for euro

Wall St skids as bleak retail data clouds trade optimism

LONDON, Feb 14, (Agencies): Optimism about USChina trade talks and bumper earnings lifted European shares to a three-month high on Thursday, though news that Germany only dodged recession by the narrowest of margins left the euro feeling unloved.

Markets were generally in a cautious mood as investors hung on for any hint of progress in the tariff talks amid reports the White House could extend the deadline for a deal.

Stocks extended gains regardless. Strong results from Nestle, drugmaker AstraZeneca and plane giant Airbus lifted the pan-European STOXX 600 0.4 percent and towards its best week since early November.

The euro did not share the loving feeling however.

It struggled near a three-month low as data showed Germany’s economy stalled in the fourth quarter, with fallout from global trade disputes and Brexit threatening to derail a decadelong expansion in Europe’s economic powerhouse.

Russian stocks and bonds were also dumped as a rare bipartisan move from US lawmakers proposed stiff new sanctions on Russian government debt as well as some banks and oil and gas firms.

But expectations have been disappointed before, and the reaction in Asian share markets was guarded. Shanghai blue chips closed broadly flat, having jumped 2 percent on Wednesday to levels last seen in late September.

MSCI’s broadest index of AsiaPacific shares outside Japan eased 0.15 percent, though that was off a peak last seen in early October and Japan’s Nikkei finished flat having briefly touched its highest level this year.

The Australian dollar, often used as a liquid proxy for China risks, gained 0.4 percent to $0.7114 and S&P 500 futures added 0.15 percent having closed above its 200-moving average for the second running on Wednesday.

The Aussie dollar had already got a small lift when Chinese trade data handily beat expectations in a welcome relief for the global economy.

The euro was at $1.1265, not that far above the floor of a $1.1213/1.1570 trading range that has held since midOctober.

Sterling was also on edge at $1.2845 ahead of another parliamentary vote on British Prime Minister Theresa May’s Brexit plan.

That all left the dollar near its highest since mid-December against a basket of currencies at 97.059.

In commodity markets, spot gold edged up 0.18 percent to $1,308.56 per ounce.

Oil prices found support as top exporter Saudi Arabia said it would cut crude exports and deliver an even deeper output cut.

US crude was up 56 cents, or 1 percent, at $54.42 a barrel, while Brent crude futures rose 97 cents to $64.50, its highest since November.

US

US stocks fell on Thursday, led by declines in consumer and bank shares, after bleak retail data fanned concerns about retailer earnings and led to increased bets of interest rate cuts, with losses capped by optimism over SinoUS trade talks.

Retail sales tumbled 1.2 percent in December, the commerce department said, the largest drop since September 2009 when the economy was emerging from a recession. Economists polled by Reuters had expected an increase of 0.2 percent.

The disappointing data came ahead of earnings from big box retailers such as Walmart Inc next week, and PepsiCo Inc due on Friday.

Coca-Cola Co tumbled 7.6 percent after the world’s largest beverage company forecast slowing sales in 2019 and lower demand for its fizzy sodas in some markets.

The drop weighed on the S&P consumer staples, which declined 0.74 percent. The S&P retailing index fell 0.74 percent, dragged down by drops in Amazon.com and Home Depot.

The weak data also pulled US Treasury yields lower, sending financials down 1.3 percent.

Federal funds futures implied traders saw about a 15 percent probability the US central bank would lower overnight interbank borrowing costs by a quarter point, up from 7 percent late on Wednesday.

At 11:09 a.m. ET, the Dow Jones Industrial Average was down 139.14 points, or 0.54 percent, at 25,404.13. The S&P 500 was down 11.99 points, or 0.44 percent, at 2,741.04 and the Nasdaq Composite was down 12.38 points, or 0.17 percent, at 7,408.00.

The technology sector was flat, but chipmakers, which get a large portion of their revenue from China gained. The Philadelphia Chip rose 0.11 percent.

UK

Britain’s main stock index held on to last session’s advance, aided by earnings-driven gains in drugmaker AstraZeneca and software company Micro Focus and boosted by forecastbeating trade data from China.

The FTSE 100 rose 0.3 percent by 0959 GMT and the FTSE 250 was up 0.1 percent. The midcap gains were limited by a plunge in medical-device maker ConvaTec’s shares after its disappointing results.

Investors also awaited the latest parliamentary debate later in the day on Prime Minister Theresa May’s Brexit plan.

Blue chips got their biggest boost from AstraZeneca, which rose 4.2 percent to put it on track for its best day since early November. Its fourthquarter sales beat expectations and it forecast sales growth for 2019.

Micro Focus led the blue chips, as its shares jumped 14.2 percent to their highest in nearly a year after it reported annual pro-forma revenue fell less than expected.

Under-performing the main bourse was Coca Cola HBC, which slipped 4.6 percent after it warned economic growth would slow in many of its markets this year. Shares were on track for their worst day in three years.

The mid-caps saw steep, news-related moves as well.

ConvaTec was the biggest drag on the index after reporting lower annual operating profit.

Frankie & Benny’s owner Restaurant Group skidded 11 percent on news its chief executive officer will step down due to “extenuating personal circumstances”.

Ashmore’s shares slumped 7 percent as the chief executive and majority owner of the emerging-market-focused fund manager revealed plans to sell down his stake, overshadowing a rise in assets under management.

Europe

Optimism about US-China trade talks and strong results from Nestle, AstraZeneca and Airbus helped European shares extend their winning streak on Thursday to hit their highest in three months.

The pan-European STOXX 600 was up 0.5 percent at 0938 GMT, with Paris’ CAC 40 up 0.6 percent, and London’s FTSE 100 up 0.4 percent. The pan-European index was on track for its best weekly performance since early November.

Frankfurt’s trade-sensitive DAX was up 0.4 percent, showing resilience after GDP data revealed the euro zone’s largest economy only just escaped falling into recession in the fourth quarter. GDP data for the whole bloc will be released at 1000 GMT.

Nestle, the world’s top food and drinks maker, soared to all-time highs after giving an upbeat outlook for the year ahead on an improving outlook in China and North America.

The news lifted the food and beverage index 1.4 percent to its highest since November 2017.

Banks were a mixed bag, with Commerzbank rallying after its quarterly results beat expectations, while results from Credit Suisse and Credit Agricole failed to ignite much love from investors. Their shares were down 2.3 percent and 1.1 percent respectively.

Asia

Asian stocks were mixed in narrow trading on Thursday as China and the US kicked off two days of trade negotiations in Beijing. Regional indexes have advanced for three straight days on hopes that both sides will make headway on big issues like Beijing’s technology policy.

Hong Kong’s Hang Seng edged 0.2 percent lower to 28,433.04. Australia’s S&P/ASX 200 shed 0.1 percent to 6,059.40 while the Kospi in South Korea rebounded 1.1 percent to 2,225.85. The Shanghai Composite index inched 0.1 percent higher to 2,724.20.

Japan’s benchmark Nikkei 225 finished almost flat at 21,139.71, despite preliminary data showing that its economy grew by 1.4 percent in 2018’s fourth quarter, helped by strong domestic demand. This was a vast improvement from a broad contraction in the previous quarter. Shares were flat in Taiwan but rose in Singapore, Thailand and the Philippines.

Oil

Oil rose for a third day on Thursday to reach its highest so far this year as financial markets drew support from investor optimism that the United States and China could resolve their trade dispute.

The price of crude has gained about 20 percent this year, driven primarily by the prospect of a decline in oil supply from OPEC and other top exporters such as Russia.

Brent crude futures were up 24 cents at $63.85 a barrel by 1417 GMT, after hitting a 2019 high of $64.81, while US crude futures slipped 7 cents to $53.83 a barrel, reversing an earlier gain.

The Organization of the Petroleum Exporting Countries and allies such as Russia, a group known as OPEC+, have agreed to cut crude output by a joint 1.2 million barrels per day. Top exporter Saudi Arabia said it would cut even more in March than called for under the deal.

This week’s positive tone in oil futures has masked a dislocation in the physical markets. The steep rise in availability of US shale oil is leading not only to a build in domestic inventories of crude, but also in refined products.

The US Energy Information Administration said on Wednesday US crude stocks rose to their highest since November 2017 as refiners cut runs to the lowest since October 2017 to combat tumbling margins, particularly for gasoline.

Currencies

The dollar dropped to session lows on Thursday morning following a report that US retail sales recorded the biggest drop in more than nine years in December, suggesting a sharp slowdown in economic activity at the end of 2018.

The dollar index, which measures the currency against a basket of six rivals, was down 0.1 percent, last at 97.035 .

Thursday’s data is supportive of the Federal Reserve’s current inclination towards patience in its rate-hiking cycle.

The euro rose on the back of the dollar’s move, up 0.29 percent, last at $1.130.