Europe stocks slip after Shanghai slides

28/05/2015 11:08 AST

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European bourses are soft and the single currency is firm after a choppy Asian session that saw Shanghai slide and Japanese stocks record their best winning streak in more than a quarter of a century as the yen hit 12-year lows.

US index futures show the S&P 500 easing 4 points to 2,119 later in New York as the FTSE Eurofirst 300 opens down 0.3 per cent.

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The relatively meagre moves in US and European equities are matched by action in fixed income, where 10-year Treasury yields are slipping just 1 basis point to 2.13 per cent and equivalent maturity German Bunds are little changed at 0.54 per cent.

The euro is adding to the previous session’s rally, which came on hopes that Greece and its creditors were nearing an agreement on economic reforms that will allow Athens to receive much needed financial aid.

The common currency is up 0.3 per cent to $1.0938, helping to nudge the dollar index (DXY) down 0.4 per cent to 97.03.

The DXY sits only about 3.5 per cent shy of the 12-year peak touched in March, supported in recent days by the buck’s renewed strength against the yen (JPY) as investors contrast an expected Federal Reserve interest rate rise sometime this year with the Bank of Japan’s ongoing ultra-loose monetary policy.

At one point during Asian trade on Thursday, the dollar (USD) fetched as much as Y124.28, the yen’s weakest level since December 2002.

The exporter-sensitive Tokyo stock market tends to sport a tight correlation to the USD/JPY cross and so the pairing’s move higher initially helped lift the Nikkei 225 by 0.9 per cent. But in a session that forex analysts at Citi described as having “plenty of fireworks . . . with some decent high volume moves taking place”, it was not long before some dealers started taking profits on their long USD/JPY positions.

The buck is now easing 2 pips to Y123.63 and the Nikkei pared its gains to close up 0.4 per cent — though that did allow the stock average to record a fresh 15-year high and its longest winning streak since 1988.

Chinese markets also had a volatile time. Another session of gains would have marked an eight-day positive run for the Shanghai Composite index in a rally that had seen the benchmark surge more than 50 per cent in the year to date and more than 135 per cent in the past 12 months.

But after advancing in early trading the SCi retreated sharply, losing 4.8 per cent as traders were spooked by brokerages tightening their margin financing rules amid concerns by regulators that retail investors are borrowing too much to speculate in shares.

The Philippines stock market was also hard hit, down 1.6 per cent to leave it on track for a sixth consecutive day of declines, the longest losing run since December 2013. Manila reported its weakest annual growth since the final three months of 2011, but the central bank said it saw little reason for monetary stimulus.

Despite early gains, Australia’s S&P/ASX 200 lost 0.2 per cent, having sold off ahead of the release of capital expenditure data for the first three months of the year. Capex tumbled 4.4 per cent in the March quarter — double the decline economists had expected — and estimates for capital spending in 2015-16 were down sharply from a year earlier.

Financial Times