Stocks have see-sawed while oil, the greenback and bond yields all fell as investors began the week cautious about prospects that US interest rates could soon be raised.
The FTSEuroFirst 300 index of leading shares, Germany’s DAX and France’s CAC 40 all fell as much as 1 per cent in early trade but then rebounded into positive territory.
Shares in German drugs and chemicals group Bayer AG were among the most notable decliners, however, down as much as 3 per cent after it unveiled a $US62 billion ($A85.87 billion) bid for US seeds company Monsanto Co.
US futures pointed to a fall of around 0.3 per cent at the open on Wall Street, as investors continued to digest last week’s surge in US rate rise expectations.
“The Fed’s decision to convey a much firmer hawkish tone has certainly woken people up to the possibility that rates could rise over the summer and with that, the markets have perked up as well,” said Craig Erlam, senior analyst at Oanda.
Purchasing managers index data showed that euro zone business growth slipped in May to a 16-month low, the latest evidence to suggest a strong acceleration in growth in the first three months of the year was only temporary.
Markit’s flash Composite Purchasing Managers’ Index, one of the first growth indicators in a month, edged down to 52.9 from April’s 53.0, essentially stable but still the lowest since the start of 2015.
Germany’s private sector growth accelerated in May to the highest level so far this year, but activity elsewhere failed to keep pace.
Earlier in Asia shares mostly rose, with MSCI’s broadest index of Asia-Pacific shares outside Japan up 0.3 per cent, but Japan’s Nikkei ended down 0.5 per cent.
The Markit/Nikkei flash Japan manufacturing PMI showed Japanese manufacturing activity contracted at the fastest pace in more than three years in May, while a slump in Japanese trade and reports that Japan’s sales tax increase would indeed be implemented all weighed on the Nikkei.
Markets have started to entertain the prospect of a near term US rate lift after last week’s release of Fed meeting minutes showed that policymakers weren’t shying away from raising interest rates as early as next month.
The probability for a June rate rise rose from around 4 per cent at the start of the week to 30 per cent on Friday, according to CME Group’s FedWatch site. Futures markets are predicting two rate increases this year as opposed to just one as recently as last week.
The 10-year US Treasury yield fell 2 basis points at 1.83 per cent, after having chalked up its biggest weekly rise last week for six months. The two-year yield fell a basis point, flattening the yield curve slightly.
Lower US yields and a flatter curve kept a lid on the dollar. The dollar index, which tracks the greenback against a basket of six rival currencies, edged down 0.2 per cent to 95.190. It has racked up three straight weekly gains, a run not seen since the first quarter of last year.
The yen gained most among the major currencies, supported by the ballooning Japanese trade surplus. The US dollar was last down 0.6 per cent at Y109.50, and the euro was steady at $US1.1217.
Crude oil prices fell as much as 1 per cent, once again running out of steam as the $US50 a barrel level came into view.