Euro stocks fail to match Wall Street records

Kuwait Times - - BUSINESS -

LON­DON:

Euro­pean shares dipped and Ger­man bond yields briefly touched record lows yes­ter­day, a con­trast with the buoy­ant mood on Wall Street as in­vestors fo­cused on diverging growth and in­ter­est rate prospects in Europe and the United States. US stocks were set to hold on to gains af­ter the Dow closed above 19,000 for the first time on Tues­day, with in­vestors an­tic­i­pat­ing a growth boost un­der Pres­i­dent-elect Don­ald Trump and a rate hike from the Fed­eral Re­serve - ex­pec­ta­tions that should be re­in­forced by min­utes re­leased later yes­ter­day.

With Euro­pean pol­i­cy­mak­ers lean­ing the other way, reaf­firm­ing their com­mit­ment to an easy ap­proach, and bank­ing wor­ries rat­tling the bloc’s stock mar­kets, the sin­gle cur­rency held near one-year lows. The dol­lar, mean­while, is perched near a 14-year high.

The transat­lantic split has been most stark in bond mar­kets, with the fall­ing yields on twoyear Ger­man pa­per keeping the gap to US equiv­a­lents near an 11-year high. In Bri­tain, ster­ling was a tad weaker at $1.2396 be­fore a bud­get up­date from fi­nance min­is­ter Philip Ham­mond. Hopes for fis­cal stim­u­lus have been low­ered as the gov­ern­ment has stressed its bor­row­ing lim­its.

“We do like pol­icy di­ver­gence trades,” Rabobank strate­gist Lyn Gra­ham-Tay­lor said. “I think mar­kets had been a bit eu­phoric in the wake of Trump and now they are com­ing around to the un­der­stand­ing that there is not go­ing to be fis­cal stim­u­lus that is go­ing to be good for ev­ery­one.”

Weighed down by Ital­ian bank­ing stocks, euro zone shares shed 0.3 per­cent, fail­ing to match the ex­u­ber­ance in Asia, where stocks gained 0.7 per­cent to strike a one-week high, and Tues­day’s rally in the US. With Ja­pan on hol­i­day, Aus­tralia’s main in­dex led the ac­tion in Asia with a rise of 1.35 per­cent to a one-month top, helped by strength in bulk com­mod­ity prices.

China’s blue-chip CSI300 in­dex ad­vanced 0.5 per­cent to a near 11-month peak as the yuan touched its low­est in six years.

With eq­ui­ties in de­mand, US bonds were get­ting the cold shoul­der. Two-year note yields rose as far as 1.107 per­cent on Tues­day, the high­est since April 2010. Euro­zone yields have been head­ing in the op­po­site di­rec­tion and some solid growth data did lit­tle to shake ex­pec­ta­tions for more mon­e­tary eas­ing from the Euro­pean Cen­tral Bank next month.

That saw yields on Ger­man two-year pa­per hit a record low of mi­nus 0.74 per­cent early on Wed­nes­day. That move kicked into re­verse af­ter a re­port that the ECB is look­ing to lend out more bonds to avert a mar­ket freeze, although the gap to U.S. Trea­suries re­mains near its widest since 2005.

That gap kept the euro pinned at $1.0624, not far from last week’s one-year trough at $1.0569. Against a bas­ket of cur­ren­cies, the dol­lar was flat at 101.03, very close to a 14-year peak.

The dol­lar also kept most of its re­cent hefty gains on the yen at 111.04, though it has met re­sis­tance around 111.35 in the last cou­ple of ses­sions. Emerg­ing mar­kets have strug­gled in re­cent days as surg­ing U. bond yields sucked much-needed cap­i­tal out of Asia. Trump’s past talk of trade tar­iffs has also weighed on sen­ti­ment in the ex­port-in­ten­sive re­gion.

An­a­lysts at JPMor­gan said Trump’s pledge to dump the Trans-Pa­cific Part­ner­ship was al­ready priced into mar­kets. “What may not be fac­tored in is the pos­si­bil­ity of fol­low-through on other, more pro­tec­tion­ist cam­paign pro­pos­als,” they wrote in a note to clients.

“We re­main con­cerned about this as a source of down­side risk, de­liv­er­ing a negative sur­prise to mar­kets which so far ap­pear to be en­am­ored of his em­pha­sis on fis­cal stim­u­lus and dereg­u­la­tion since the elec­tion.”

Else­where, oil prices edged higher but gains were capped by in­vestors’ doubts that oil car­tel OPEC would agree to a large enough pro­duc­tion cut to sig­nif­i­cantly re­duce a global sur­plus when it meets next week.

Asian mar­kets rose again yes­ter­day, track­ing a record close on Wall Street, while the dol­lar held onto its gains against the yen on ex­pec­ta­tions of a US in­ter­est rate rise. The Dow ended above 19,000 for the first time Tues­day as US traders, while still un­cer­tain about the out­look, bet on a near-term bump for the world’s top econ­omy from Don­ald Trump’s growth plans.

In­vestors ex­pect his administration will cut taxes, ramp up in­fras­truc­ture spend­ing and slash reg­u­la­tions, all of which would likely fan in­fla­tion — in turn putting pres­sure on the Fed­eral Re­serve to raise in­ter­est rates. “Bulls have got con­trol here and US equity and many other de­vel­oped mar­kets are go­ing higher, at least in the short term,” said Chris We­ston, chief mar­kets an­a­lyst in Mel­bourne at IG Ltd. Syd­ney closed 1.3 per­cent higher, Seoul gained 0.2 per­cent and Sin­ga­pore added 0.4 per­cent. Taipei and Welling­ton were also well up. How­ever, Shang­hai gave up early gains to end 0.2 per­cent lower, while Hong Kong was marginally off, break­ing a three-day win­ning streak. Tokyo was closed for a pub­lic hol­i­day. —Agen­cies

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