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Pound steady and stock markets mixed

Thursday 08:35 BST

What you need to know
● Stock markets mixed after Wall Street’s steady display
● Shanghai Composite hits 6-week low amid liquidity concerns
● Sterling holds above $1.24 as traders ponder Brexit implications
● Dollar index above 100 as euro softens on ECB report
● Oil prices add to Wednesday’s 2.1 per cent gain and gold dips
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Hot topic

Traders are keeping a wary eye on the action in China’s financial markets.

The mainland’s equity benchmark, the Shanghai Composite, fell for the fourth day in a row, losing 1 per cent to close at its lowest level since February 17.

The technology-focused Shenzhen Composite lost 2 per cent for its worst finish since February 21 and the caution spread to Hong Kong, where the Hang Seng index shed 0.2 per cent.

Analysts cited a number of factors behind the retreat. Property stocks were under pressure after a government think-tank urged the authorities to guard against speculative excesses in the real estate sector.

The concerns dovetailed with a midweek warning from Moody’s that said the risks to China’s economy from any property downturn continue to grow, given banks’ sensitivity to the sector.

In addition, worries are growing about financial market liquidity going into the end of the first quarter after the People’s Bank of China dismissed such concerns and drained funds from the system for the fifth day in a row.

Finally, sharp declines for some recently effervescent new issues were seen as hitting retail investor sentiment, Reuters reported.

What to watch

A survey of consumer confidence in the eurozone during March is due to be published at 10:00 BST, followed at 13:00 BST by the March “flash” estimate of German consumer price growth. HSBC reckons annual CPI will rise 1.8 per cent

The final reading of US fourth-quarter gross domestic product is expected to hit the wires at 13:30 BST and analysts predict annualised growth of 2 per cent.

US weekly initial jobless claims will be released at the same time.

Forex

After a choppy session on Wednesday when UK prime minister Theresa May formally triggered Brexit, the pound is notably calmer, easing just 12 pips to $1.2420 and 0.1 per cent firmer versus the euro at £0.8651.

The euro is off 0.1 per cent to $1.0751 and this is helping the dollar index hold at 100.02 as investors absorb the latest monetary policy clues.

The common currency came under pressure in the previous session after Reuters reported that the ECB’s policy intentions from its March meeting had been misinterpreted as too hawkish and the central bank was now wary of making changes to its upcoming April policy message.

Meanwhile, the buck is being underpinned by a flurry of comments from Federal Reserve officials that, on balance, are seen as delivering a less dovish than expected stance by the US central bank.

Fixed income

The comments from various Fed speakers do not seem to have had a lasting impact on government bonds.

The more policy-sensitive US 2-year yield, which moves opposite to the bond price, is barely changed on the day at 1.28 per cent.

Similarly benchmark 10-year Treasuries are easing just 1bp at 2.38 per cent and equivalent maturity German Bunds are 1bp softer at 0.34 per cent. UK gilts are off 2bp to 1.13 per cent.

Equities

The rally in oil prices is lifting energy stocks and helping underpin equity benchmarks.

US futures suggest the S&P 500, which gained 0.1 per cent in the previous session, will add less than 0.1 per cent to 2,362.4 when trading gets under way later in New York.

The pan-European Stoxx 600 is up 0.1 per cent as London’s FTSE 100 adds 0.1 per cent on strength for oil producers.

Australia’s S&P/ASX 200 was 0.4 per cent higher, with solid gains in resources groups, but Tokyo took the wooden spoon with the Topix index slipping 0.9 per cent as exporters bemoaned the yen remaining near ¥111.0 per dollar.

Commodities

Relatively bullish data on US crude inventories pushed oil prices more than 2 per cent higher on Wednesday and that momentum is continuing into the new session.

Brent crude, the international benchmark, is up 0.2 per cent to $52.50 a barrel and West Texas Intermediate is climbing 0.4 per cent to $49.70.

Both precious and base metals are under pressure as the dollar firms. Gold is down 0.2 per cent to $1,250 an ounce, while London-traded copper is slipping 0.8 per cent to $5,861 a tonne.

Additional reporting by Peter Wells in Hong Kong

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