Friday 10:30 BST. Stocks are under pressure, boosting demand for government bonds, as a strengthening yen and weaker oil prices highlight waning risk appetite.
Investors are cautious ahead of US retail sales data that may increase concerns of fragile consumer confidence in the world’s biggest economy.
After a soft Asia session, US index futures suggest the S&P 500 will drop 0.5 per cent to 2,054 as the pan-European Stoxx 600 equity index falls 0.7 per cent.
Bourses are pressured by a weaker resources sector as Brent crude slips 0.9 per cent to $47.66 per barrel. The international oil benchmark is suffering some profit-taking having rallied this week to challenge seven-month highs, partly on a surprise drop in US inventories.
The dollar index, which measures the buck against a basket of its peers, is up 0.1 per cent at 94.26 as investors await US retail sales data for April, due at 13:30 BST.
Analysts expect month-on-month growth of 0.8 per cent, though dealers are wary the number could undershoot if recent poor trading news from a swath of US retailers, such as Gap and Macy’s, is any guide.
The University of Michigan consumer sentiment gauge is due for release at 15:00 BST, and if this also points to deteriorating confidence then the market may display heightened concerns about a slowing US economy.
The market already is not expecting the Federal Reserve to raise interest rates again this year, and this is supporting fixed income assets, suppressing yields.
The US 2-year bond yield, which briefly rose above 1 per cent in March, is down one basis point on the day to 0.75 per cent.
Benchmark 10-year Treasury yields are slipping 4bp to 1.72 per cent, while equivalent maturity German Bunds are down 2bp to 0.13 per cent.
Softer Bund yields, and a euro slipping 0.2 per cent to $1.1351, come after news that the eurozone is back in deflation, with the annual prices index falling 0.3 per cent.
This counteracted data showing Germany’s economy picked up speed in the first quarter of the year, growing 0.7 per cent compared with a 0.3 per cent expansion in the fourth quarter of 2015.
Sterling is down 0.3 per cent to $1.4407 as investors continue to absorb the Bank of England’s warning on the adverse economic consequences if the UK, at a June 23 referendum, votes in favour of leaving the European Union.
The firmer dollar cannot prevent gold jumping $12 to $1,275 an ounce, but other pockets of the commodity complex are under severe pressure: particularly China-traded futures, which continue to suffer following Beijing’s move to clamp down on speculation in the sector.
The Dalian Iron Ore futures contract plunged 4.4 per cent to a four-month low, while Steel Rebar futures lost 6 per cent. Reuters reported that the nervousness was spreading to China’s vegetable oil futures, off 4 per cent, which in turn rattled the Malaysian Palm Oil contract, currently down 1.8 per cent.
With crude oil prices also lower, that was not great news for the Kuala Lumpur stock market, which illustrated nervousness among emerging market assets with a 1.3 per cent retreat.
Indeed this matched a sour mood across the Asia-Pacific region as worries about the US economy lingered.
Australia’s S&P/ASX 200 slipped 0.6 per cent, while Hong Kong’s Hang Seng fell 1 per cent, and on the Chinese mainland, the Shanghai Composite shed 0.3 per cent.
Korea’s Kospi lost 0.5 per cent, while the won was 0.2 per cent weaker after the Bank of Korea left interest rates on hold, as expected by most economists.
Last month, the central bank cut its forecasts for annual inflation and growth, and a number of economists think it is only a matter of time before the BoK eases monetary policy.
The same goes for the Bank of Japan. BoJ governor Haruhiko Kuroda said on Friday the central bank still had policy options available if it wanted to further expand its stimulus.
But the yen is more concerned about behaving as the market’s risk proxy, rising 0.3 per cent to ¥108.73, a strengthening that contributed to the exporter-sensitive Nikkei 225 falling 1.4 per cent.
Additional reporting by Peter Wells in Hong Kong
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