Stocks muted, bond yields up as ECB stimulus hopes adjust

Oil rises over 1 pct on expectations of extended output cuts

LONDON, Sept 10, (RTRS): Global bond yields rose on Tuesday, amid growing caution over the extent to which the European Central Bank will add stimulus to boost an ailing economy this week and rising hopes that Berlin could loosen its purse strings.

Germany’s 30-year benchmark bond yield briefly broke into positive territory for the first time in more than a month, while US Treasury yields climbed to 18-day highs.

Safe-haven assets have been caught up in the fixed income sell-off, with gold slipping to its lowest level since midAugust and Japan’s yen plumbing a fiveweek low.

But global stocks failed to make gains, as weak Chinese producer prices data dampened the mood, and US shares were seen opening lower.

The bond moves come as markets are gearing up for Thursday’s European Central Bank (ECB) meeting, which is widely expected to deliver a cut to interest rates and point to further bond-buying stimulus. However, there is a growing chorus of opinion that ECB policymakers and other central banks with negative interest rates and sub-zero long-term sovereign bond yields are nearing the limits of stimulus policies.

The sell-off in fixed income markets failed to inspire global stocks, where the mood was subdued amid concerns over the health of the world economy.

Asian bourses slipped lower after data showed China’s mainland factory-gate prices shrank at their fastest pace in three years as flagging demand at home and abroad forced some businesses to slash prices.

In Europe, the pan-European stocks benchmark index STOXX 600 fell 0.3% in a second day of losses, while France’s CAC slipped 0.2%.

However, Germany’s export-oriented DAX index turned positive, helped by a Reuters report that Bank of Japan policymakers are now more open to discussing the possibility of expanding stimulus at their Sept. 18-19 board meeting due to the broadening fallout of the US-China trade war. And climbing bond yields helped lift European banking stocks 1.8%, making financials the best performing sector on the continent.

US stock futures pointed to a lower open on Wall Street after the S&P 500 ended flat in New York on Monday.

In currencies, the rise in Treasury yields helped the dollar touch a fiveweek high of 107.50 yen. The euro was broadly flat at $1.104 after reaching an overnight high of $1.1067.

The pound traded steady near a sixweek high of $1.2385 after a law came into force demanding that Prime Minister Boris Johnson delay Britain’s departure from the European Union unless he can strike a divorce deal with the bloc.

Oil futures hit their highest level in six weeks after Saudi Arabia’s new energy minister confirmed he would stick with his country’s policy of limiting crude output to support prices.

US crude traded at $58.43 a barrel after hitting the highest since July 31. Brent crude futures climbed to $63.23 a barrel.

US

A fall in technology stocks pulled Wall Street’s main indexes lower on Tuesday as weak economic data from China revived global recession fears, but losses were tempered by hopes on trade.

Analysts attributed some of the selloff in tech to investors re-distributing wealth into stocks that have underperformed during the year.

Tech stocks, the best performer on the S&P 500 with a 28% surge this year, fell 1.13%, while the energy sector, the year’s worst performer, jumped 1.78%.

Real estate fell 1.94, the most among the 11 major S&P sectors. The sector is the second best performer of the year, gaining 24%.

“It’s less about risk and more about returns - taking profits and reallocating to the losers,” Aguilar said.

Trading so far this week has largely been subdued as investors hold out for policy decisions from central banks on potential monetary easing. The European Central Bank will hold its policy meeting on Thursday.

At 12:09 pm. ET the Dow Jones Industrial Average was down 36.44 points, or 0.14%, at 26,799.07, the S&P 500 was down 13.08 points, or 0.44%, at 2,965.35 and the Nasdaq Composite was down 43.83 points, or 0.54%, at 8,043.61. Among other stocks, Apple Inc dipped 0.3% ahead of an event where it is widely expected to unveil its latest iPhones.

Details on its new video streaming service could also move shares of Netflix Inc and Walt Disney Co. Netflix was down 0.2%.

Boeing Co’s plane deliveries fell 72% in August, pushing total deliveries so far this year down more than 40%, as the worldwide grounding of its best-selling 737 MAX jet enters its seventh month. Shares of the planemaker rose 2.2%.

Ford Motor Co fell 2.7% after ratings agency Moody’s downgraded its bonds to junk status overnight.

Advancing issues outnumbered decliners by a 1.30-to-1 ratio on the NYSE and by a 1.53-to-1 ratio on the Nasdaq.

The S&P index recorded 11 new 52week highs and two new lows, while the Nasdaq recorded 28 new highs and 34 new lows.

UK

London’s FTSE 100 overcame early losses to close higher on Tuesday as hopes of imminent interest rate cuts from major central banks buoyed sentiment, while JD Sports jumped to an all-time high on upbeat results.

The blue-chip index added 0.4%, with JD Sports gaining 8.8% after its gym clothing and premium-branded fashion helped it post higher profit and offset UK retail sector gloom.

The FTSE 250 rose 0.3%, helped in part by a nearly 13% surge in Cairn Energy as strong half-year results led to a production target upgrade.

In a sign of ongoing rotation, investors dumped defensive shares and bought stocks of sectors that have underperformed this year, helping an index of banks climb 2.4% for its best day since January.

Shares of Lloyds and Barclays rose 4.3% and 4.9%, respectively, while healthcare stocks GlaxoSmithKline and AstraZeneca shed more than 2% each.

UK markets also looked past disappointing data from China overnight that had added to fears of a global recession.

Europe

European shares fell in early trading on Tuesday, dragged down by a sell-off in defensive sectors and on disappointing China data that stoked recession worries ahead of the European Central Bank’s monetary policy meeting later this week.

The pan-European stocks benchmark index STOXX 600 fell 0.6% by 0840 GMT with all major country indices in the red. The index was on track to post its worst session in more than two weeks.

Euro zone stocks also weakened as investors focused on the ECB’s meeting on Thursday, when it is widely expected to cut its deposit rate for the first time since 2016 and restart an asset purchase programme.

Defensive sectors such as healthcare, utilities and food and beverages were among the biggest losers. The stocks had been in high demand over the past three months amid trade and growth uncertainties.

European banks posted the largest increase, led by London banks Barclays, Standard Chartered Bank and RBS. Swiss bank UBS Group rose 2% after Kepler Cheuvreux upgraded the stock to “buy”.

Euro zone banks were trading flat after rising 1.3% earlier in the session. They have risen 9% in the past five days in one of their strongest rallies since April 2017. Technology stocks, a key growth sector, fell 1.3%, tracking their US counterparts lower.

On the corporate side, JD Sports topped the STOXX 600 after it reported higher first-half pretax profit, helped by more demand for gym apparel and premium branded fashion.

Meanwhile, German bund yields hit a one-month high following a Reuters report that Europe’s biggest economy is considering a “shadow budget” to allow the government to circumvent its strict national debt rules.

Asia

Asian shares were mixed Tuesday after a day of listless trading on Wall Street, as investors awaited signs on global interest rates.

Japan’s benchmark Nikkei 225 added nearly 0.3% in afternoon trading to 21,379.45. Australia’s S&P/ASX 200 fell 0.7% to 6,599.60, while South Korea’s Kospi edged up 0.5% to 2,030.21. Hong Kong’s Hang Seng was virtually unchanged, inching down less than 0.1% at 26,679.83, while the Shanghai Composite lost 0.3% to 3,015.25.

Oil

Oil futures rose on Tuesday to their highest levels in almost six weeks on optimism that OPEC and other producing countries will agree to extend output cuts to support prices.

Brent was up 67 cents or 1.07% at $63.26 a barrel by 1305 GMT, while US West Texas Intermediate (WTI) futures were up 63 cents, or 1.09%, at $58.48 a barrel.

Brent reached its highest level since Aug. 1, while US crude rose to its highest since July 31.

Prince Abdulaziz bin Salman, Saudi Arabia’s new energy minister and a long-time member of the Saudi delegation to the Organization of the Petroleum Exporting Countries (OPEC), said the kingdom’s policy would not change and a global deal to cut oil production by 1.2 million barrels per day would be maintained.

He added that the so-called OPEC+ alliance, made up of OPEC and nonOPEC producers including Russia, would be in place for the long term.

The OPEC+ joint ministerial monitoring committee (JMMC), which reports on compliance with the cuts, is due to meet on Thursday in Abu Dhabi.

There have been concerns about producers’ adherence to the agreement as OPEC members Iraq and Nigeria, among others, exceeded their quota in August and Russia also did not fully comply.

Should oil markets close higher on Tuesday it will be the longest run of gains since late July but headwinds remain due to US-China trade tensions.

Cuurencies

Sterling was stable on Tuesday as investors kept their hands off the British currency given that the risk of Britain crashing out of the European Union without a divorce deal on Oct. 31 remained high.

The pound enjoyed a relief rally on Monday after better-than-expected economic data eased investor worries about a technical recession in Britain, and after Goldman Sachs cut its expectations for a no-deal Brexit.

But “whilst there has been a relief rally in sterling, the market is going to be quite nervous until more clarity emerges” on what sort of relationship Britain is going to have with Europe after it exists the EU, said Foley, adding “it will be quite some time until uncertainty clears”.

Sterling was flat at $1.2353 by 1530 GMT, having jumped to a six-week high the day before. Against the euro, the pound was neutral at 89.44 pence.