Thursday 21:00 BST
What you need to know
● US and European stocks gain ground, Nasdaq closes at record
● Shanghai Composite hits 6-week low amid liquidity concerns
● Sterling briefly moves above $1.25
● Dollar index above 100 after upward revision to US Q4 GDP data
● Oil prices add to Wednesday’s 2.1 per cent gain but gold dips
Hot topic 1
The dollar was generally higher, and Treasury bond prices lower, as policy divergence between the US and most other nations came back into focus.
The dollar index — a gauge of the US currency against a basket of peers — was up 0.5 per cent at 100.52. The euro was down 0.8 per cent at $1.0680, while the dollar was up 0.6 per cent versus the yen at ¥111.74.
The single currency — dented on Wednesday by claims that the market had taken too hawkish a view of the European Central Bank’s policy intentions — came under further pressure yesterday from the latest German inflation data.
“Based on the results of six regional states, German headline inflation came in at 1.6 per cent year on year in March, from 2.2 per cent in February,” said Carsten Brzeski, economist at ING.
“Let’s not forget that since the ECB’s March meeting, markets have increasingly priced in the possibility of a rate hike before the end of this year.
“Today’s German data and [Friday’s] eurozone [inflation] data should help the ECB in getting rid of such rate hike expectations.”
The yield on the 10-year German government bond fell 2 basis points to 0.33 per cent. By contrast Spanish and Italian 10-year yields both rose 1bp to 1.64 per cent and 2.30 per cent, respectively.
In the US, the 10-year US Treasury yield was up 3bp at 2.42 per cent — and the two-year was 1bp higher at 1.29 per cent — as the market digested news of an upward revision to US fourth-quarter GDP growth and further comments from regional Federal Reserve officials in support of multiple US rate rises this year.
“Their comments will be crucial in setting market expectations that are currently pricing the probability of a June hike at just over 50 per cent,” said Eric Theoret, FX strategist at Scotiabank.
Hot topic 2
Traders kept 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.
Sterling bucked the broad trend in the FX arena as it rose 0.3 per cent against the dollar to $1.2469 — having peaked at $1.2525 — and was 1.1 per cent firmer versus the euro at €1.1671, a four-week high.
“The response to the Article 50 trigger has been impressively muted, and the two-year Brexit negotiation process has just begun,” noted Mr Theoret at Scotiabank.
“Sterling’s greatest near-term risk is likely centred around positioning as we consider the sizeable Commodity Futures Trading Commission ‘short’, suggesting extensive bearish sentiment.”
In New York, the benchmark S&P 500 equity index rose 0.3 per cent to 2,368 — leaving it 1.2 per cent below the record close it reached on March 1.
The technology-heavy Nasdaq Composite rose 0.3 per cent to an all-time closing peak.
Across the Atlantic, the pan-European Stoxx 600 index ended 0.5 per cent firmer at a fresh 15-month high, although the FTSE 100 in London edged back 0.1 per cent as sterling’s strength reined in the index.
US banking stocks were back in vogue as the outlook for the US economy brightened — and the outlook for US interest rates came back under the spotlight — after news that fourth-quarter GDP growth had been revised up modestly to an annual pace of 2.1 per cent from 1.9 per cent.
“The third estimate of fourth-quarter GDP paints a picture of a healthy consumer, likely fuelled by ongoing gains in employment, modest increases in wages and solid balance sheets,” said Blerina Uruçi, economist at Barclays.
“However, fixed investment remains soft. We expect the economy to grow at a broadly similar pace in the first quarter, although we expect the composition to change toward a slower rate of increase in consumer spending and less of a drag from net trade.”
Australia’s S&P/ASX 200 index 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.
US energy stocks made impressive gains as US West Texas Intermediate crude rallied back above the $50 a barrel for the first time since March 10.
It was last up 1.6 per cent at $50.32, while Brent oil settled at $52.96, up 1 per cent.
Crude prices found support from reports of growing support for an extension of an Opec deal to curb output, analysts said.
The dollar’s firm tone and the rise in US bond yields kept the gold price reined in, with the metal shedding $8 to $1,243 an ounce.
But copper rose 0.8 per cent in London to a four-week high of $5,955 a tonne.
Additional reporting by Peter Wells in Hong Kong
For market updates and comment follow us on Twitter @FTMarkets