(Repeats to add headline tag)
By Sujata Rao
LONDON Aug 14 Bond yields dropped to record
lows across the euro zone on Thursday and the euro hovered near
its weakest in nine months after Germany reported its economy
shrank in the second quarter, fuelling expectations of more
central bank stimulus.
The chance of more action from the European Central Bank
helped equity markets to recoup some of their early losses. So
did remarks by Russian President Vladimir Putin, who said his
country did not want conflict with the outside world
U.S stock futures signalled a stronger opening on Wall
Germany said its gross domestic product shrank by 0.2
percent during the April-May period. That report came after
earlier data showed gross domestic product had fallen in both
Italy and Japan, Chinese lending had declined and U.S. retail
sales had stalled.
In addition, the French economy failed to expand for a
second straight quarter. Growth in the euro zone overall was
flat in the second quarter, weaker even than the 0.1 percent
expansion that had been forecast.
"Disappointing euro area growth and intensifying
disinflation pressures increase the pressure on the ECB for
further action in coming months," said Nick Stamenkovic, a
strategist at RIA Capital Markets in Edinburgh.
"If the economy disappoints in the second half then the
pressure on the ECB to start QE (money-printing) in early 2015
Those expectations pushed German 10-year yields to record
lows below 1 percent, with traders reporting that
the yield had touched 0.998 percent. French yields fell as well,
to 1.392 percent, also a record low. Spanish bond
yields reached record lows as well, dropping to 2.42 percent
The euro meanwhile hovered near nine-month lows against the
Sterling also struggled, declining to a four-month low of
$1.6657 after the Bank of England surprised investors
by signalling it was in no hurry to raise interest rates. The
pound has dropped almost 3 percent since climbing to six-year
high in the middle of July.
Morgan Stanley's head of European currency strategy, Ian
Stannard, said economic weakness would keep the single currency
under pressure. U.S. data by contrast is relatively encouraging,
making it more likely the Federal Reserve will raise interest
rates next year.
"That highlights the divergence we're seeing in the G10,
with disappointing data coming from most countries with the
exception being the United States, and that's going to keep the
dollar supported across the board," Stannard added.
The potential effect on energy demand of lacklustre European
growth lingering worries about China kept oil prices near
13-month lows. Brent crude futures fell 69 cents to $103.6 per
Despite the weak growth expectations, the prospect of more
stimulus encouraged some equity players.
World stocks inched to one-week highs while
Europe's FTSEurofirst 300 index and Frankfurt's DAX rose 0.3
percent and 0.5 percent respectively .
France's CAC index also rose half a percent after
opening the day's trade 0.5 percent in the red.
U.S. stock index futures edged higher, with S&P 500 e-mini
futures rising 3 points. Dow Jones industrial average
e-mini futures rose 24 points and Nasdaq 100 e-mini
futures added 5.75 points.
Markets now await U.S. weekly jobless claims, due at 1230
GMT for a check on the state of the labour market recovery.
(Editing by Larry King)