Equities break recovery streak with US and China mkts closed

Oil prices near two-week high, gold steady

LONDON, Feb 19, (Agencies): World stocks were set to post their first loss in five days on Monday, breaking a winning streak that saw them recover almost half their losses from a violent sell-off two weeks ago.

In a day of relatively quiet trading owing to market holidays in the United States and China, losses in Europe weighed on stocks globally, which had earlier been propped up by gains in Japan.

European markets had opened positive, setting up the MSCI world index for its sixth day of gains but, by afternoon, the pan-European STOXX index had slipped over half a percent.

A poor update from Reckitt Benckiser hit the consumer staples sector, outweighing gains among financials and strength in steel makers after the US outlined proposals for hefty import curbs.

Shares in Tenaris, Outokumpu and Arcelor Mittal - which have facilities in the United States - were the biggest gainers in Europe, up between 1 and 4 percent.

The MSCI world index, which tracks shares in 47 countries, was down 0.1 percent. The index has recovered nearly half what it lost between late January and last week’s low. The 4.3 percent gain it ultimately posted last week was its best weekly performance since December 2011.

January’s two-week rout, triggered by worries about a rise in US inflation, had wiped more than $6 trillion off the value of global stock markets.

The sell-off took place despite global growth was helping to improve the corporate earnings outlook.

Just before the plunge, world shares were trading at 16.66 times expected earnings, the highest levels since 2004, according to Thomson Reuters Datastream. They are currently at 15.33 times.

Equity investors have drawn some reassurance from a fall in the VIX - a measure of implied volatility on the S&P 500 index, also known as Wall Street’s “fear gauge”.

The index has remained below 20 for three days, last reading at 19.46. It spiked to a 2-1/2-year high of 50.3 two weeks ago, a jump that caused massive losses among investors who had bet equity markets would stay stable on a combination of solid economic growth and moderate inflation.

The dollar edged up from threeyear lows against a basket of currencies.

The euro stood at $1.2396, backing down from Friday’s three-year high of $1.2556.

The dollar traded at 106.53 yen, bouncing back from its 15-month low of 105.545 set on Feb 16.

Oil prices hit their highest level in nearly two weeks, lifted by the recovery in stocks and by tensions in the Middle East.

US West Texas Intermediate crude rose 1.2 percent to $62.47 per barrel.

Brent crude rose over 1 percent to $65.63 per barrel.

Gold was flat.

UK

British shares lost some ground on Monday as weak results from Reckitt Benckiser underlined the murky growth outlook for big consumer goods makers and banking holidays in the US and China slowed European markets.

The UK’s top share index closed down 0.64 percent at 7,247.66 points, a decline broadly in line with other European bourses.

Reckitt fell the most, down 7.5 percent as the group missed 2017 profit estimates and tough trading conditions and rising commodity costs hit its outlook.

Another factor weighing on Reckitt’s shares was the heightened expectation of it buying the consumer health business being sold by Pfizer, which could dilute shareholders through an equity capital increase.

Consumer staples makers were the biggest drag on the FTSE.

Some investors say prices of their branded goods now look unsustainably high compared to the “private labels” of big retailers.

European consumer staple stocks have fared worse only than telecoms over the past six months on such concerns, combined with a rise in bond yields that could eventually dim the appeal of their stable dividends.

UK shares last week recovered some of the losses they suffered in a sharp sell-off earlier in the month driven by rising bond yields.

Many investors took the declines as an opportunity to buy shares in big UK-based multinational companies as the global growth picture still appears strong.

JPMorgan strategists advised investors a week ago to add to their global equity holdings and reiterated that view on Monday.

“We still believe that the correlation between bond and equity prices remains firmly inverse, i.e. that equities will tolerate higher yields,” they said in a note.

The session’s highest gainer was Evraz which added 4.4 percent after it signed a long-term agreement for the supply of rails and related products to the Russian Railways.

Asia

Asian stock markets mostly edged up in thin holiday trade on Monday, with Tokyo’s benchmark index surging nearly two percent as investors regained some confidence.

A weaker yen and continued gains on Wall Street last week helped push the bellwether Nikkei 225 index up 1.97 percent or 428.96 points to close at 22,149.21.

The broader Topix index was up 2.17 percent or 37.78 points at 1,775.15.

Stocks in Sydney and Seoul also ended higher, but trading was generally subdued in the region as many major markets, including in China and Hong Kong, remain closed for the Lunar New Year break.

“Japanese stocks this week will likely test a rebound” from sharp drops earlier in the month, Okasan Online Securities said in a note.

“Given falling volatility both in Japan and in the United States, we can expect a calm market,” it said.

The dollar, which fell below 106 to hit the lowest since November 2016 against the yen on Friday, rebounded to 106.53, compared with 106.25 in New York late Friday.

“Investors were relieved to see the yen stop rising,” said Toshikazu Horiuchi, a broker at IwaiCosmo Securities.

“They will remain cautious about foreign exchange rates for the time being” as the dollar was still hovering around the 106 yen level, Horiuchi told AFP.

Market sentiment was also boosted by a relatively positive end to the week in the US and Europe.

In the markets that were open in Asia on Monday, the Australian ASX closed up 0.64 percent while New Zealand closed down 0.12 percent.

South Korea’s KOSPI was up 0.87 percent.

Tokyo - Nikkei 225: UP 1.97 percent to 22,149.21 (close)

Hong Kong - Hang Seng: Closed for a public holiday

Shanghai - Composite: Closed for a public holiday

Dollar/yen: UP at 106.53 yen from 106.25 yen

Oil

Oil prices hit their highest level in nearly two weeks on Monday, lifted by a global equity market recovery and tensions in the Middle East, although concerns of rising US production tempered gains.

European shares rose for a fourth straight session, with global stocks set for a sixth session of gains, following a sell-off triggered by fears of creeping inflation and higher borrowing costs.

Brent crude was up 34 cents at $65.18 a barrel at 1356 GMT, after rising to an 11-day high of $65.45 a barrel earlier in the session.

US West Texas Intermediate crude for March delivery was up 46 cents at $62.14 a barrel, after earlier gaining as much as 1.4 percent to its highest since Feb 7.

“Benign stock markets are providing ... as are geopolitical tensions in the Middle East,” Commerzbank said in a note.

Israeli Prime Minister Benjamin Netanyahu said on Sunday that Israel could act against Iran itself, not just its allies in the Middle East, after border incidents in Syria brought the Middle East foes closer to direct confrontation.

Trading is expected to be slower than usual on Monday due to market holidays in the United States and Greater China.

The US oil rig count, an indicator of future production, rose by seven to 798, its highest since April 2015, according to a weekly report from General Electric’s Baker Hughes unit.

That marked the first time since June that drillers added rigs for four consecutive weeks, and the figure was well up on the 597 rigs that were active a year earlier as energy companies have boosted spending since mid-2016 when crude prices began recovering from a two-year crash.

Surging US production is offsetting efforts by the Organization of the Petroleum Exporting Countries (OPEC) and some other producers including Russia to curb production by 1.8 million barrels per day (bpd) until the end of 2018.

Gold

Gold prices were mostly flat on Monday as the dollar clawed back some recent losses and stocks rose, but US inflation fears kept buyers in the metal.

Spot gold was flat at $1,347.50 an ounce at 1623 GMT.

Gold rose 2.4 percent last week in its biggest weekly gain in more than five months.

US gold slipped 0.5 percent to $1,350 per ounce.

“Gold is doing relatively well in a risk-on environment. The safe-haven appeal (in gold) is a bit in question but it has lot to do with movements in the dollar which has recovered somewhat,” said ABN AMRO commodity strategist Georgette Boele.

The dollar index , which measures the currency against a basket of currencies, was up 0.2 percent after shedding 1.4 percent last week.

Investors piled into gold last week on concerns that US inflation could heat up.

“Gold is likely to battle between USD weakness and inflationary fears against rising rates, but we believe the broad price risks remain to the upside, in the current environment,” Standard Chartered said in a note.

Gold is often used as a hedge against geopolitical uncertainty.

Hedge funds and money managers cut their net long positions in COMEX gold in the week to Feb 13, US Commodity Futures Trading Commission data showed on Friday.

Trading is expected to be slower than usual this week due Lunar New Year celebrations in China. Monday is also a market holiday in the United States.