European stocks claw back ground as markets steady

LONDON Mon May 27, 2013 10:57am EDT

1 of 8. Traders work at their screens in front of the DAX board at the Frankfurt stock exchange May 7, 2013.

Credit: Reuters/Remote/Lizza David

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LONDON (Reuters) - European stocks, bonds and the dollar traded more calmly on Monday after last week's turbulence, though another 3 percent dive in Japan's main share index kept investors on edge.

UK and U.S. holidays kept European equity and bond markets quieter than usual, but with last week's falls tempting buyers, the Euro STOXX 50 was up 0.8 percent and Italian and Spanish bonds eyeing their first gains in three sessions.

The dollar was also steadier, though it slid back to 101 against the yen as the latest lurch in Japanese equities encouraged investors who have been unwinding their dollar hedges on share portfolios and heading for bonds.

The 3.2 percent drop on Tokyo's Nikkei brought its losses since Thursday to more than 10 percent, although the index is still up 35 percent this year.

Last week's shakeout of equity, bond and currency markets was triggered by concerns the U.S. Federal Reserve could wind in its monetary support sooner than had been expected, weak Chinese data, and doubts over how low Japan will allow the yen to go.

But despite the wobble, analysts largely foresee a period of moderation in risk assets, rather than a big correction.

"The transition to a post U.S. QE (quantitative easing) world will be turbulent," said J.P. Morgan global strategist Dan Morris. "But with fundamental drivers for equities still supportive, investors should tighten their seatbelts instead of reaching for the parachute."

CHILLY TO SUB-ZERO

Whereas the Fed appears to be eyeing an exit from its crisis measures, the European Central Bank may still have some scope to counter a long-running euro zone recession triggered largely by efforts to contain the bloc's sovereign debt crisis.

On Wednesday, the European Commission will release its review of countries' debt-cutting policies, which will confirm that the likes of France, Spain and Slovenia are to be given more time to trim their budget deficits to target. The Organisation for Economic Co-operation and Development will publish a review of major economies on the same day.

Three Italian government bond auctions this week will also test demand after the talk of Fed stimulus withdrawal.

Italian and Spanish bonds were caught in the sell-off in risk assets last week but yields on both have eased back as focus turns to the ECB's next step.

Policymaker Joerg Asmussen said the bank would remain accommodative "as long as needed" although he sounded cautious about charging banks to put money on deposit at the ECB, something that could help hold down national borrowing costs.

"One should be very cautious regarding the discussion if the ECB could introduce negative deposit rates ... This can have advantages, but it can also have disadvantages," Asmussen said in a speech in Berlin.

OIL SLIPS

The mood was once again cautious in the commodities markets. Brent crude slipped towards $102 per barrel, extending last week's 2 percent drop, as the patchy economic outlook in a well-supplied market pressured prices.

The broader market nerves also helped safe-haven gold firm to $1394.39 an ounce as it built on last week's best run in a month, while growth-attuned copper fell 0.2 percent.

After disappointing data from China last week dimmed the outlook for global oil demand, oil producer cartel OPEC is expected to keep policy unchanged at a meeting on Friday.

The shale revolution in the United States, still the biggest oil consumer, may even bring an end to the relentless rise in fuel prices seen over the past decade.

"OPEC is in a hard situation," said Chakib Khelil, Algeria's oil minister from 1999 to 2010. "The demand for OPEC oil is going down, while increasing demand is being met by others..."

(Additional reporting by Alex Lawler and Peg Mackey; Editing by Catherine Evans)

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Comments (4)
SanPa wrote:
A message from investors? Is the yen about to sink faster than stock appreciation?

May 26, 2013 8:40pm EDT  --  Report as abuse
PPlainTTruth wrote:
Investing in the Nikkei is worse than going to a casino.

What do you expect? Japan is led by a crook; and the polls show that the people give him an approval rate of 60%, the last I checked.

That means that not only the leadership, but a majority of the nation is completely untrustworthy.

May 26, 2013 9:01pm EDT  --  Report as abuse
jonacrane wrote:
My daddy always said “cash is king in a depression”……..

May 26, 2013 9:32pm EDT  --  Report as abuse
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