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China anxiety hits stocks, oil still shaky

European stock markets have made a mixed start to trading, after seeing Asia hit a one-week low overnight.

Reuters: Sharp losses in Chinese stocks pulled Asian equities further away from two-month highs on Wednesday as weak trade figures from the world’s second-biggest economy and wobbly oil prices revived concerns about global growth.

European shares, however, look set to fare slightly better, with financial spreadbetters expecting Britain’s FTSE 100 .FTSE, Germany’s DAX .GDAXI and France’s CAC .FCHI to each open about 0.1 percent higher.

Worries over the Chinese economy have weighed on Asian stock markets overnight.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJPUS fell 0.3 percent, down 1.4 percent from its two-month high hit on Monday. Japan’s Nikkei ended the day down 0.8 percent, its lowest close in a week.

Chinese shares also lost ground, with the Shanghai Composite index and the CSI 300 both sliding about 2.4 percent. Hong Kong’s Hang Seng slipped 0.4 percent.

“Concern about Chinese growth deceleration was renewed by yesterday’s weak export data, and with oil and stock prices falling, the yen is attracting risk-aversion demand,” Takuya Kanda, a senior researcher at Gaitame.com Research Institute Ltd. “Markets are nervous ahead of major central bank meetings this and next week.”

After reporting a contraction in fourth-quarter gross domestic product last session, Japan announced Wednesday a seventh monthly drop in machine tool orders. France’s central bank released an indicator showing business sentiment is worsening and forecast the country’s economy will expand 0.3 percent this quarter from the previous period. The U.K. is scheduled to report industrial output data for January.

The overnight sharp slide in oil from recent lows also proved worrisome for investors although they showed some stability in Asian trade

“Although oil prices have risen sharply from the trough, many investors are not yet convinced if things have improved that much and I suspect they judged now is a good time to sell,” said Tatsushi Maeno, managing director of PineBridge Investments.

Crude oil rose 0.2 percent to $36.57 a barrel in New York, after a 3.7 percent slide on Tuesday that marked its biggest loss in almost four weeks. U.S. inventories climbed by 4.4 million barrels last week, the industry-funded American Petroleum Institute was said to report. Government data Wednesday is forecast to also show supplies increased, keeping stockpiles at the highest level in more than eight decades.

Nickel rebounded 2.2 percent after tumbling 8.5 percent on Tuesday. Copper gained 0.7 percent, after sliding by the most since November in the previous session. Copper demand won’t catch up with supply until 2017, according to a senior official at Freeport-McMoRan Inc., the largest publicly traded producer of the metal. Gold fell 0.2 percent, extending Tuesday’s retreat from a one-year high.

The Bloomberg Commodity Index rose 0.1 percent, after a 1.1 percent loss in the last session. It’s dropped 22 percent in the past year.

“The IMF’s latest reading of the global economy shows once again a weakening baseline,” IMF First Deputy Managing Director David Lipton said Tuesday in Washington. “Moreover, risks have increased further, with volatile financial markets and low commodity prices creating fresh concerns about the health of the global economy.”

U.S. stocks also ended near the day’s lows on Tuesday as energy shares tumbled, losing steam after hitting a two-month high on Friday.

S&P 500 Index .SPX lost 1.12 percent to 1,979.26 while the tech-heavy Nasdaq .IXICdropped 1.26 percent to 4,648.83.

 

The reversal came as oil prices fell about 3 percent on Tuesday, ending six days of gains for benchmark Brent crude futures, following industry data showing U.S. stockpiles reached record highs again last week. [O/R]

Brent LCOc1 settled down 2.9 percent at $39.65 a barrel on Tuesday after hitting a 2016 high of $41.48 earlier in the session.

Safe assets: The 10-year U.S. Treasuries yield fell back to 1.8497 percent, erasing its gains made after Friday’s payrolls data.

U.S. and Japanese bonds fell as record-low yields in the Asian nation curbed demand for government debt. The move is a reversal from Tuesday, when Japan ignited a global debt rally as its benchmark 10-year yield slid to an unprecedented minus 0.1 percent.

Would you like to buy at negative point one percent?” said Kazuaki Oh’E, the head of fixed income at CIBC World Markets Japan Inc. in Tokyo. The level is too expensive for most investors, he said.

The dollar’s index against a basket of six major currencies .DXY =USD slipped to a two-week low of 96.887 on Tuesday. It eased back up to 97.385 on Wednesday.

The yen Jrose to one-week high of 112.42 to the dollar on Tuesday and last stood at 112.58, a gain of 1 percent so far this week.

The People’s Bank of China set the yuan’s midpoint rate at 6.5106 per dollar prior to market open, weaker than both the previous fix. The currency opened stronger at 6.5062 but has since weakened to 6.5147

The euro  rose to $1.1058 on Tuesday, its highest in more than a week. It has since eased to around $1.09795, down about 0.3 percent for the week, ahead of the European central Bank’s policy meeting on Thursday.

Financial markets expect the ECB to cut its deposit rate by at least 10 basis points and expand its asset-buying program. However, with so much already priced in, some traders are primed for a repeat of the sharp gains in the euro seen in December when the ECB’s measures fell short of market expectations.

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