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Markets Update am

Risk Aversion Grows

  • Australia cuts interest rates to turn back global deflation tide
  • Yen Stronger
  • Banks drag stocks

The U.S. dollar slid to its lowest against major currencies in well over a year on Tuesday, a move led by the yen’s continued march higher as investors grew doubtful about central banks’ ability to boost growth through aggressive policy easing.

Analysts at Rabobank noted the dollar’s fall towards 105 yen from as high as 122 only a few months ago, a remarkable move that will do nothing to relieve the deflationary pressures in Japan and which reflects “the broader problem of unconventional monetary policy reaching its limits just like conventional policy already has”.

That did not stop Australia’s central bank surprising markets by cutting interest rates to a record low of 1.75 percent, however, hitting the currency but lifting the country’s shares.

MSCI’s broadest index of Asia-Pacific shares outside Japan  fell to a three-week low and the euro’s burst through $1.16 for the first time in eight months pushed European shares deeply into the red.

Europe’s FTSE 300 index of leading 300 shares fell 1.3 percent .FTEU3 and Germany’s DAX shed 1.7 percent .GDAXI, both the lowest in nearly three weeks. Shares in German lender Commerzbank (CBKG.DE) were among the biggest decliners across Europe, down 7 percent after profits slumped in the first quarter.

The Stoxx Europe 600 Index tumbled 1.1 percent at 8:59 a.m. in London as all industry groups retreated. A rally in European shares has lost momentum since reaching a three-month high on April 20, with investors now looking to financial results for stock cues. Analysts have slashed profit projections for Stoxx 600 firms this year, reversing earlier calls for growth to forecast a decline.

UBS Group AG fell 5.8 percent after reporting worse-than-forecast first-quarter net income. Commerzbank AG lost 6 percent after its profit more than halved. HSBC Holdings Plc erased gains to fall 0.7 percent after posting a drop in profit. BNP Paribas SA climbed 1.5 percent after announcing a surprise increase in income.

S&P 500 futures retreated 0.5 percent, indicating U.S. equities will resume losses after Monday’s rebound.

More than 115 of S&P 500 companies, including Pfizer Inc., Priceline Group Inc. and Whole Foods Market Inc. are scheduled to report financial updates this week.

Crude oil prices drew support from the weaker dollar, inching back up towards Friday’s 2016 highs. U.S. crude futures CLc1 rose to $45 a barrel, slightly below the 2016 high of $46.78 hit on Friday but 80 percent above February’s low.

Copper fell after a private Chinese factory gauge showed contraction for a 14th month and U.S. manufacturing growth cooled. Iron-ore futures in Asia tumbled as rising port inventories in China, the biggest buyer, hurt prices.

Gold prices pushed above $1,300 an ounce on speculation that the U.S. central bank will be slow to tighten policy further

Treasury 10-year note yields slid four basis points to 1.84 percent, erasing their increase from Monday.

Australia’s bonds rallied after the RBA’s rate decision, pushing the 10-year yield to a three-week low of 2.47 percent.

Greenland Holding Group Co.’s dollar bonds fell to the lowest in more than seven weeks after S&P Global Ratings downgraded the Chinese property developer to junk last week. S&P downgraded its assessment to BB, two steps below investment grade, from BBB-.

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