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U.S. data, Fed caution keep pressure on stocks, dollar

Posted by: Admin | Posted on: April 30th, 2015 | 0 Comments

LONDON (Reuters) – World stock markets and the dollar remained in sharp sell-off mode on Thursday, having been jolted sharply lower by weak U.S. growth data and cautious comments from the Federal Reserve.

Asian and European stocks continued a two-day decline for equity markets worldwide, with Europe’s FTSEurofirst 300 down 0.3 percent and heading for its worst week of the year. [.EU]

The slide of more than 3 percent is being compounded by this week’s jump in bond yields and a surge of more than 2 percent in the euro to above $1.12, all of which are threatening to dampen the region’s recovery prospects.

Benchmark German Bund yields kept on climbing, having posted their biggest daily rise in two years on Wednesday on robust German inflation and a pick-up in ECB bank lending figures.

While inflation data for the euro zone showed the currency bloc ended four months of deflation in April, with consumer prices unchanged from year-ago levels, removing the threat of persistent price declines as energy costs pushed higher, some cautioned that the spectre of deflation was not entirely gone.

“A flat print is far from a sufficient reason to pop the champagne corks,” RBC Capital Markets economist Timo del Carpio said in a note to clients. “There are still real risks associated with a prolonged period of low-but-positive inflation rates across the euro area.”

U.S. stock index futures were 0.2 percent lower, a day after data showed that U.S. economic growth slowed to a crawl in the first quarter, and ahead of earnings from Coca-Cola, ConocoPhillips and Colgate-Palmolive.

Jefferies’ global equity strategist Sean Darby said markets were now having to readjust fast to the changing fortunes of the U.S. and Europe.

“The U.S., the U.S. dollar and the U.S. economy were very heavily consensus trades at the end of last year,” he said.

“Trades around that, for example weak oil price, strong dollar, weak euro, have also been very consensus over the last couple months. That easy money has probably played itself out … There is a bit more unwinding to go.”

The disappointing news on the world’s biggest economy comes on top of a worrying slowdown in China and persistent fears about Europe as Greece scrambles to avoid bankruptcy.

The Federal Reserve said on Wednesday that the dip in the U.S. economy was probably due to “transitory” factors. But, combined with concerns about the labour market, traders all but crossed June to September from the list of possible start dates for Fed rate rises.

Central banks and the cheap money they are pumping into the world’s still-wobbly economy remain the underlying theme for markets.

New Zealand’s central bank became the latest to say it could cut interest rates if domestic momentum weakened.

Russia cut rates by one-and-a-half percentage points, having had to jack them up last year following the slump in oil prices and the Ukraine crisis.

The rouble firmed after the central bank announcement, having been down prior to the decision, as there had been speculation that the bank would opt for a bigger rate cut. At 1047 GMT the rouble was at 51.23 against the dollar, still down 0.7 percent on the day. [RUBUTSTN=MCX]

U.S. crude oil hit a five-month high as the dollar slipped to its lowest since February and as more evidence emerged of a gradual balancing of the U.S. domestic market.


Europe’s slide mirrored overnight moves in Asia. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.1 percent as South Korean, Australian, Chinese and Hong Kong shares all suffered losses.

Japan’s Nikkei slumped 2.6 percent, extending losses after the Bank of Japan kept monetary policy unchanged. The decision was expected but disappointed some participants who had bet it may ramp up its already massive stimulus measures.

“Risk has been building in the markets for weeks – the mass stock market trading account openings in China, the rally in Europe as the ECB ploughs on with its 65 billion euro a month QE programme,” IG market strategist Evan Lucas said.

(Additional reporting by Lionel Laurent; Editing by Louise Ireland and Kevin Liffey)

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