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What you need to know

  • Stock markets mixed ahead of US earnings and as Easter break looms
  • Waning risk appetite pushes Treasury yields down to 2.3 per cent
  • Demand for havens sees gold hit $1,275 an ounce, Vix tops 15
  • Japanese shares stumble 1 per cent as dollar drops below ¥110
  • Brent crude rallies to five-week highs amid Middle East tensions


Hot topic
Geopolitical anxiety is continuing to underpin “haven” assets, while caution over corporate profits leaves stock markets rangebound.

Russia’s dispute with the West over Syria; heightened tensions on the Korean peninsula, after US president Trump said he was prepared to act unilaterally to reign in Pyongyang; and fresh caution about the French election as far-left candidate Jean-Luc Mélenchon gains in the polls, are all cited as causes of investor concern.

Add to this, thin trading as the Easter break approaches, and wariness that the US first-quarter earnings season may struggle to justify current stock market valuations, and investors may be forgiven for adopting a tentative stance.

US index futures suggest the S&P 500 will dip half a point to 2,353.2 when trading gets under way later in New York.

The Wall Street stock barometer has witnessed some intraday wobbles of late, but for the last 10 sessions it still has closed within just a 15 point range between 2,353 and 2,368. Bulls have been buying on the dips but seem wary of pushing back towards the record of 2,396 hit at the start of March, ahead of the big US bank stocks like JPMorgan, Citigroup and Wells Fargo presenting their results on Thursday.

This caution is encouraging investors to buy portfolio protection, with the CBOE Vix index, a volatility measure known as Wall Street’s fear gauge, closing on Tuesday at 15.07, a five-month high.

Meanwhile, classic “haven” assets are benefiting from the international tensions. Gold is up $1 to $1,275 an ounce, the bullion’s most expensive price since November. The Japanese yen in early Asia action hit ¥109.33 per dollar, its strongest since November 18, though it is currently little moved on the day at ¥109.61.

Similarly, the US 10-year Treasury yield, which moves opposite to the bond price, is down 1 basis point to 2.30 per cent, near its lowest in five months, while equivalent maturity German Bunds hold at just 0.21 per cent as traders seek safety amid the French election jitters.

What to watch
The pound is up just 5 pips to $1.2492 and 10-year gilt yields are steady at 1. 06 per cent ahead of the release at 09:30 BST of the UK jobs data for February.

According to HSBC, the unemployment rate will remain at 4.7 per cent and “wage growth will continue to look sluggish” at 2.3 per cent.

The Bank of Canada will reveal its latest monetary policy decision at 15:00 BST. Analysts expect interest rates to remain at 0.5 per cent, and ahead of the accompanying statement the Canadian dollar is 0.1 per cent softer at C$1.3336 per greenback.

Equities
Wall Street’s rally off session lows on Tuesday is helping the pan-European Stock market climb 0.3 per cent at the open, helped by life insurance groups.

Earlier in Asia, Tokyo bore the brunt of a stronger yen, with the Topix index shedding 1 per cent as energy and financials struggled.
Toshiba dropped 1 per cent a day after warning of “substantial doubt” about its ability to stay in business.

Hong Kong’s Hang Seng index was up 0.2 per cent, while on the mainland the Shanghai Composite fell 0.6 per cent.

Forex

Trading across major currencies is fairly muted on Wednesday. The dollar index. which measures the buck against a basket of its peers, is down 0.1 per cent to 100.65 as the euro adds 0.1 per cent to $1.0614.

The South African rand is steady at 13.7880 per dollar, holding the previous session’s 1 per cent rally that came following a heavy sell-off in response to economic policy jitters and a ratings downgrade.

In South Korea the won recovered from a morning dip and was up 0.3 per cent, firming to 1,142.95 per dollar after the country’s finance ministry said it would take action if market instability increases in the face of rising geopolitical tensions.

The offshore rate for China’s renminbi remained weaker than its onshore rate for a second straight day. The onshore renminbi slipped 0.1 per cent to Rmb6.8977 against the dollar while the offshore rate was unchanged at Rmb6.9027 after snapping a six-day decline on Tuesday.
Commodities
Oil prices are continuing their rally, with Brent crude up 0.2 per cent to $56.36 a barrel, the benchmark’s most expensive level since March 7.

West Texas Intermediate, the main US contract, is up 0.2 per cent to $53.48, also its highest price in five weeks ahead of inventory data due later on Wednesday.

Brent fell below $50 a barrel on March 22 amid fears that Opec production cuts were being counteracted by increased US output. But oil bulls are back in control after the US missile strike on Syria highlighted the potential for supply disruption in the Middle East.

Copyright The Financial Times Limited 2017. All rights reserved.
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