European Factors to Watch-Equity futures fall

23 Dec 2015 | Author: | No comments yet »

European markets slide over week as US-led rally wanes.

The euro picked up to US$1.0845 in foreign exchange deals, having fallen heavily on Wednesday after the US Federal Reserve raised borrowing costs for the first time in almost a decade. European stocks lost their Federal Reserve-fueled sparkle on Friday and closed firmly lower as investors erred on the side of caution ahead of what is expected to be a directionless Christmas week.Not even more largesse from the Bank of Japan can bolster the bulls, with traders seeking the “safety” of core government bonds, nudging yields lower, and the dollar shedding some of its recent gains, writes Jamie Chisholm, the FT’s Global Markets Commentator. The Fed raised its benchmark federal funds rate, locked near zero since the 2008 financial crisis, by a quarter point to 0.25-0.5 percent, saying the US economy is growing solidly.

The European Central Bank and Bank of England are propping up the eurozone and British economy with billions of dollars worth of economic stimulus by buying assets such as bonds. “Bullish Fed rhetoric can only get you so far,” said Michael Ingram, a market strategist at BGC Partners in London. “None of the worries about global growth and financial instability have really gone away. However, after a downbeat trading day in Asia, European stock markets were mired in red already from the beginning of Friday. “Currently markets feel like a newly married couple, trying to find their way in a newly anointed relationship.

Given year-to-date performance, any Santa Rally is likely to prove cold comfort.” The STOXX 600 rose 4.4 percent in the three days through Thursday on optimism that the Fed would judge the world’s biggest economy strong enough to cope with higher borrowing costs. Dollar and commodities: A plunge in the dollar against the yen appeared to be aiding gains for metals prices, including a nearly 3% jump for copper HGH6, +3.16% Softness in the dollar makes purchases of dollar-denominated commodities less expensive to holders of other currencies.

Other traders suggested the stockmarket was nervous about volatility during Friday’s “quadruple witching” on Wall Street; the end-of-quarter phenomenon when options and futures contracts expire. BHP Billiton PLC BLT, +2.46% BHP, +1.31% BHP, -0.88% shares picked up 2.5% although Moody’s Investors Service placed the iron-ore giant’s ratings on review for a downgrade. “The review will focus on the potentially very significant countermeasures the company is able to employ — and the willingness to employ such measures — to protect its credit metrics in the lower price environment” said Matthew Moore, senior credit officer at Moody’s, in a Friday statement.

The dollar is a touch weaker and resources are firmer on Friday: Brent crude is adding 0.2 per cent to $37.14 a barrel and copper is bouncing 1.2 per cent to $4,603 a tonne. Two newly-arrived populist parties — the far left Podemos and the centrist Ciudadanos, or “Citizens” — are challenging the country’s dominant two-party system. Data: French producer prices rose just 0.1% in November from October, as falling prices for food and manufactured goods tempered a rebound in energy prices. As the Nikkei reversed course the yen strengthened and is now 0.6 per cent firmer on the day at Y121.75 per dollar, a rally that is contributing to broad, though mild weakness in the buck. In China, the renminbi was on track to decline for a seventh consecutive week after the central bank set the currency’s daily fix lower for a 10th straight session.

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