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Monday 16:35 GMT. EUROPEAN CLOSE. The Tokyo stock market enjoyed a sparkling start to the week, but elsewhere signals were more cautious as investors struggled to rediscover the bullish impetus that has pushed many equity barometers to multiyear highs.
Activity had been bolstered by the return of China to the trading fold – the Shanghai Composite index lost 0.5 per cent – after the country’s week-long Lunar New Year holiday. However, that was counteracted by Wall Street’s closure on Monday for President’s Day.
High-profile risk appetite gauges alluded to the tentative tone. The dollar index, which tends to gain when traders are more skittish, rose 0.2 per cent, while “haven” Bunds were in demand, pushing yields down 3 basis points to 1.63 per cent.
In contrast, copper, usually a bellwether of perceived global economic prospects, slipped 1.4 per cent to $3.69 a pound.
The FTSE All-World index gained 0.1 per cent as the FTSE Eurofirst lost 0.2 per cent and after the Asia-Pacific region added 0.6 per cent.
But that gain for Asia was mainly the result of a 2.1 per cent surge for the Nikkei 225 as investors welcomed another fall for the yen – off 0.5 per cent to Y93.94 against the dollar – which in turn was reacting to a lack of specific criticism from the G20 meeting about Japan’s supposedly currency-focused monetary policy.
This leaves Japanese stocks less than 1 per cent below their recent four-year high, though well below the record levels of the early 1990s.
Many other developed economy bourses are also at or near cyclical peaks, but they are close to virgin territory, too.
Wall Street’s S&P 500, for example, sits less than 3 per cent below the 2007 closing high of 1,565 following a steady advance over the past four months – a bounce built on easing eurozone tensions, improving economic data from the US and China, and continuing central bank largesse.
But more tentative investors are getting worried that the rally is looking tired and that the pillars of support are not as sturdy as thought.
With regard to the market’s momentum, it is evident that recent gains have been very hard fought. The average daily move for the S&P 500 was just 0.09 per cent last week, while trading on Friday was so uncertain that the Dow Jones Industrial Average crossed the flatline 37 times during the session.
In addition, data released on Friday from EPFR Global showed worldwide investors reversed a recent trend and withdrew $3.62bn from US equity funds in the latest week, the most in 10 weeks, according to Reuters.
Some investors are also becoming less confident about commodities, with data from US futures exchanges showing traders trimmed bullish positions by the most since November.
According to Bloomberg, bets on higher gold prices fell to the lowest since December 2008, a shift in confidence that could be seen last week as the bullion dipped below $1,600 an ounce. On Monday, gold was down $2 to $1,607.
It is not just technical factors that have made some traders more circumspect.
The building optimism about the eurozone has been called into question after some rotten fourth-quarter GDP data published over recent days. Their impact has been denuded somewhat by the fact that such reports are backward looking, but still they find the market nervous ahead of political risk from the Italian general election. On Monday, the euro fell 9 pips to $1.3349.
Another issue that may become a growing cause for concern is the impact on US consumer confidence of the budget wrangling in Washington. Bloomberg reported that an internal email from Walmart said the country’s biggest retailer had the worst sales start to a month in seven years as payroll tax increases – the result of the fiscal cliff deal – hit shoppers.
Walmart said the email was taken out of context, but the issue left analysts concerned that the market had not adequately discounted the effects of US austerity – particularly pertinent, considering the March 1 deadline for a deal on the $1.2tn sequester.
Follow Jamie Chisholm’s market comments on Twitter @FTGlobalMarkets
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