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Markets Update am

  • Stocks slide as the yen firms
  • Oil prices ease and dollar rally stalls

The dollar fell on Wednesday, succumbing to a bout of profit-taking after hitting a two-week high the previous day, while European stocks also put a positive start to the week behind them to trade in the red.

Weak corporate earnings weighed on stocks, as Germany’s DAX .GDAXI snapped a four-day winning streak and the broader FTSEuroFirst 300 index of leading European shares.FTEU3 erased much of Tuesday’s rise, which was the biggest in three weeks.

U.S. futures pointed to a fall of around a third of one percent on Wall Street .

Financials were among the biggest losers in Europe, their 1.5 percent fall .SX7P led by a 10 percent plunge in Austrian bank Raiffeisen Bank International (RBIV.VI) after it said it will look into a possible merger with RZB.

Shares in outdoor advertising firm JC Decaux (JCDX.PA) slumped nearly 10 percent after it issued a weak second-quarter outlook, causing several investment banks to cut their ratings and price targets on the stock.

The dollar index, which measures the buck against a basket of its peers, is slipping 0.2 per cent to 94.11, and Treasury yields are easing one basis point to 1.75 per cent as the soft showing in stocks encourages buyers of fixed income assets.

Ten-year German Bunds are 1bp lower at 0.11 per cent and the euro is adding 0.2 per cent to $1.1388.

A weaker greenback and lower implied borrowing costs are helping gold advance by $6 to $1,272 an ounce

In a note to clients as the European trading day got under way, analysts at CitiFX said: “It has been a strange session which cannot be characterised with any single theme. Some may call it noise in FX, as market waits for the next trigger to give it direction.”

Indeed, the lack of fresh events means investors are treating current activity as mainly a reaction to what went before: in particular a burst of strength on Wall Street.

The S&P 500, which tends to set the global equity market tone, on Tuesday bounced 1.25 per cent, it biggest gain in two months, and on the second highest volume of the year.

Shares in energy groups jumped after oil rose sharply over supply concerns in Nigeria, where vandalism of oil infrastructure has cut output to its lowest in more than two decades. But Thursday sees Brent crude dip 1.5 per cent to $44.85 a barrel.

The dollar/yen exchange rate, which is considered by some traders as a proxy for broader market risk appetite, continued to recover from its recent falls to 18-month lows.

The dollar, which on May 3 hit ¥105.52 moved above ¥109 on Wednesday. But now it is again under pressure, slipping 0.6 on the session to ¥108.60.

The renewed yen strength ensured Japanese stocks struggled to enjoy Wall Street’s overnight bounce, the Nikkei 225, which had risen as much as 1.5 per cent shortly after the open on Wednesday, finished up just 0.1 per cent.

The Japanese currency had risen to a two-week high earlier this week after a key economic adviser to Prime Minister Shinzo Abe on Tuesday told Reuters that Japan would intervene if the yen firmed to between 90-95 per dollar.

The euro EUR= rose 0.2 percent on the day to $1.1390. Last week it traded at $1.16, its highest this year.

Bonds remained well supported, indicating investors were wary about the prospects for riskier assets in the near term in an environment of sluggish global growth.

An auction of three-year U.S. notes on Tuesday was received well. Yields on 10-year debt US10YT=RR were at 1.75 percent, not far away from a 2016 low of 1.53 percent.

German government bonds also reflected the cautious undertone in global markets, with the 10-year yield EU10YT down a basis point at just 0.11 percent.

Longer-dated yields on peripheral Spanish and Italian bonds, however, climbed to multi-month highs on Wednesday as Spain started the sale of a 50-year bond and investors anticipated Italy may soon do the same.

Spain’s benchmark 30-year bond yields rose 11 basis points to a two-month high of 2.86 percent  and Italy’s rose 9 basis points to a three-month high of 2.78 percent


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