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What you need to know

● Markets tentative as geo-political tensions linger

● European stocks are soft after Easter break following mixed Asia session

● S&P 500 futures flat ahead of more company earnings reports

● Gold dips from recent high and yen eases as havens see some profit-taking

● Brent crude steady but iron ore prices slide

Hot topic

Geo-political tensions are continuing to taint trader thinking — most notably with regard to supposed haven assets, though recent gains for gold, the yen and government bonds are being slightly pared on Tuesday.

Ian Williams, strategist at Peel Hunt, said:

Investors return from the extended Easter weekend with geo-political concerns still bubbling away in the background, as the uncertainty surrounding North Korea persists and the first round of the French election now less than a week away, with the opinion polls suggesting the race is tightening.

Gold, a traditional bolt hole at times of investor stress, is barely changed in the current session at $1,284 an ounce, but hit a five month intraday high of $1,295 on Monday, with buyers also energised by weak US inflation data released at the end of last week.

News that March US consumer prices fell 0.1 per cent — coupled with some disappointing retail sales figures — has caused investors to lengthen the odds on another interest rate rise by the Federal Reserve in coming months.

The CME FedWatch tool now sees a 46.6 per cent chance of a 25 basis point hike in borrowing costs at the Fed’s June meeting, down from nearly 70 per cent a couple of weeks ago. US housing data are due for release on Tuesday at 13:30 BST and industrial production numbers at 14:15 BST.

A potentially slower pace of Fed monetary tightening has added to the attraction of fixed-income assets, which were already garnering support of late from their haven status.

The 10-year US Treasury yield, which moves opposite to the bond price, is down one basis point to 2.24 per cent, holding just a few basis points above its most meagre offering since November.

Equivalent maturity German Bunds — considered by many investors to be the best hedge against a shock French election result — are easing 1bp to 0.18 per cent, also just a few bps above a five month trough. By contrast, French 10-years are up 1bp to 0.93 per cent as traders demand a higher premium to hold Paris’ debt.

What to watch

As geopolitical concerns ease somewhat, investors turn more of their attention to corporate profitability as the US first-quarter earnings parade rumbles on.

Companies due to present their results include Bank of America, Goldman Sachs, Harley-Davidson and Regions Financial.

Optimism that the earnings season can show current stock market valuations are justified helped Wall Street deliver one of its best performances of the year on Monday, with the S&P 500 gaining 0.9 per cent.

Futures indicate the S&P 500 will ease just 1 point to 2,348 when trading gets under way later in New York, leaving the stock benchmark less than 50 points shy of its record closing high hit at the start of March.

Wall Street’s latest bounce is not helping spark much of a rally in other bourses, however.

The pan-European Stoxx 600 is down 0.1 per cent in the first full day’s trading for the continent since the Easter break. London’s FTSE 100 is slipping 0.7 per cent as miners falter in the wake of a further slide in iron ore prices.

Australia’s S&P/ASX 200, also trading for the first time since Thursday, dropped 0.9 per cent, driven by declines for energy and materials stocks.

Hong Kong’s Hang Seng, also returning from a long weekend, fell 1.3 per cent and China’s Shanghai Composite lost 0.8 per cent.

Japan’s benchmark Topix pared early gains but was able to outperform with a 0.4 per cent advance as the exporter-sensitive index welcomed the yen pulling back from its strongest level since mid November.


The Japanese currency had strengthened to ¥108.11 per dollar at one stage on Monday as it received haven interest and the greenback weakened following the meek inflation data.

Tuesday sees the dollar up 0.1 per cent to ¥108.98 amid otherwise fairly tentative forex action. The dollar index, which measures the buck against a basket of its peers, is barely changed at 100.3 as the euro gains just 3 pips to $1.0643 and sterling climbs 0.2 per cent to $1.2582.

The Turkish lira is 0.3 per cent firmer at 3.6892 per dollar as investors continue to ponder the implication of the recent referendum to grant president Erdogan more powers.

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