Tuesday 08:45 GMT
Overview
European stocks are easing back after a mixed Asia session as Wall Street looks to re-enter the fray at record levels.
The dollar is stronger and Treasury yields are moving up as expectations build of tighter US monetary policy, a scenario that is hurting gold.
Hot topic
European government bond markets remain a focal point for investors after an opinion poll showed Marine Le Pen, the anti-euro far-right candidate, narrowing the gap with her rivals in the upcoming French presidential election.
The yield spread between France and Germany’s 10-year government bonds — in effect the premium investors charge Paris to sell its debt — hit 82 basis points on Monday, the widest level since August 2012.
The new session sees benchmark Bund yields up 1bp to 0.31 per cent and equivalent maturity French bonds up 3bp to 1.10 per cent, taking the spread to 79bp. Indeed, German paper is considered a haven in such circumstances and Berlin’s implied 2-year borrowing costs have fallen to a record low of minus 0.86 per cent.
Adding to the eurozone angst of late are renewed concerns about Greece’s fiscal position, which last week pushed Athens’ 2-year borrowing costs above 10 per cent. However, signs that progress is being made in resolving a dispute between creditors about Greece’s bailout funds are helping pull the 2-year yields down 81bp to 8.91 per cent.
Forex
The euro recently has been struggling to make much headway amid all this worry about the common currency’s long term future.
In the current session it is 0.2 per cent weaker versus the UK pound at £0.8498 and slipping 0.5 per cent against the US dollar to $1.0557, despite news of a pick-up in French and German private sector activity.
With the pound easing 0.3 per cent to $1.2422 and the Japanese yen off 0.4 per cent to ¥113.52 per greenback, the dollar index is gaining 0.4 per cent to 101.34.
Analysts at Citi said the buck might be getting a lift from comments by Patrick Harker, president of the Philadelphia Federal Reserve, who reiterated that March should be considered for the next rate hike.
Fixed income
As the policy-sensitive US 2-year government bond yield rises 1 basis point to 1.21 per cent, futures markets are pricing in a 36 per cent chance that the Fed will increase rates at its meeting next month. That rises to 58.7 per cent for a hike at the May meeting.
The longer end of the yield curve is also moving higher, the 10-year adding 1bp to 2.44 per cent.
Equivalent maturity Japanese government bond yields are barely changed on the day at 0.095 per cent, despite data showing manufacturing activity expanded in January at its fastest pace since early 2014.
Equities
US index futures suggest the S&P 500, which was closed on Monday for the Presidents’ Day break, will inch up by 1.5 points to 2,352.8.
That would leave the Wall Street benchmark in line for another record close as hopes linger that President Donald Trump’s mooted policies of tax cuts, infrastructure spending and deregulation will support corporate profits.
But the mood across global bourses is somewhat subdued on Tuesday as bulls consolidate after the recent strong run.
The pan-European Stoxx 600, which last week recorded its highest close since December 2015, is down less than 0.1 per cent. London’s FTSE 100 is slipping 0.4 per cent, helped by miners after BHP Billiton’s results, but hurt by banks after a poorly-received report from HSBC.
Japan’s Topix rose 0.6 per cent as exporters received a boost from the weaker yen, but Australia’s S&P/ASX 200 eased 0.1 per cent and the soft showing by HSBC also hindered Hong Kong’s Hang Seng, which shed 0.8 per cent.
However, hopes that pension funds were buying the market, and that a number of companies had cancelled share sales, helped push China’s Shanghai Composite up 0.4 per cent to a near three-month high.
Commodities
The stronger dollar and rising bond yields are weighing on gold, with the bullion sliding 0.4 per cent to $1,233 an ounce.
Base metals are mostly lower in the face of the advancing buck, but energy is swimming against the tide.
Brent crude, the international oil benchmark, is up 0.5 per cent to $56.46 a barrel and West Texas Intermediate is gaining 0.7 per cent at $53.78.
Additional reporting by Peter Wells in Hong Kong
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