Solid second-quarter start for European stocks, dollar after blowout first quarter

By Marc Jones

LONDON (Reuters) – European stocks and the dollar made solid starts to the second quarter on Wednesday as signs of a recovery in the euro zone and expectations of more good U.S. news cheered investors after their blowout last few months.

Europe’s benchmark FTSEurofirst 300 (.FTEU3) recovered strongly after an early wobble to put London’s FTSE (.FTSE) Germany’s DAX (.GDAXI) and France’s CAC (.FCHI) up 1.1, 1 and 1.5 percent after euro zone manufacturing data was revised higher.

Wall Street (ESc1) was expected to see a more subdued start when it resumes later but the dollar (.DXY) was back on the front foot with traders eyeing ISM manufacturing and ADP jobs data for the latest readout on the health of the U.S. economy.

Euro zone bonds also remained in favour as the European Central Bank pushed on with its 1 trillion euro buying plan, while oil remained under pressure (LCOc1)(CLc1) amid hopes of an Iran nuclear deal that is expected to loosen sanctions on the OPEC member.

Currency markets stayed mostly in recent ranges after a tumultuous few months.

After a dip in Asia, the dollar edged back up to 120.15 versus the yen (JPY=) and to $ 1.0750 per euro (EUR=) after the euro made its worst ever start to a year in Q1.

“I would be surprised if we had a similar quarter again considering the performances of the dollar and the euro over the last few quarters,” said Derek Halpenny, European head of global markets research at Bank of Tokyo Mitsubishi in London.

“With no policy (rate hike) announcement likely in the second quarter from the Federal Reserve, that reduces the scope for significant moves… Also the bulk of global easing that has helped fuel the dollar is probably behind us now.”

More signs that the ECB’s stimulus programme is bearing fruit came as euro zone manufacturing activity accelerated faster than previously thought last month to hit a 10-month high.


Data from China was less robust, bolstering the view that Beijing has to provide more stimulus to keep growth on track, with some analysts eyeing moves to directly push down the yuan’s value.

The HSBC/Markit China Manufacturing Purchasing Managers’ Index (PMI) came in at 49.6, slightly higher than a preliminary “flash” reading of 49.2 but still below the 50-mark separating contraction from expansion.

An employment subindex contracted for a 17th straight month, falling to its lowest since August 2014.

“The latest data indicate that domestic and foreign demand remains subdued amid weaker market conditions,” said Annabel Fiddes, an economist at Markit.

Shares in Shanghai (.SSEC) gained 1.4 percent however, on the hope of more stimulus. The rest of Asia was subdued.

Bourses in the red included Japan, South Korea, Australia, Malaysia and Indonesia. Japan’s Nikkei sank 0.9 percent after a lacklustre Bank of Japan business survey.

After Greece failed on Tuesday to reach an initial deal on reforms with its lenders, Athens was the only bourse (.ATG) in the red in Europe and its government bond yields inched closer to 12 percent.

The rising dollar weighed on commodity markets, helping drive nickel (CMNI3) to its lowest in 6 years before a bounce, copper (CMCU3) slipped and gold (XAU=) struggled at $ 1,180 an ounce to add to last month’s 2.4 percent loss.

The Iran talks kept the squeeze on oil markets. Brent crude for May delivery (LCOc1), which fell 8 percent over the last week, was flat at $ 55.10 a barrel. U.S. crude was 25 cents lower at $ 47.35.

Iran’s senior nuclear negotiator, Abbas Araqchi, said Tehran hoped to wrap up talks by Wednesday night. “We insist on lifting of financial and oil and banking sanctions immediately,” he told Iranian state television.

(Additional reporting by Jacob Gronholt-Pedersen in Singapore; Editing by Eric Meijer and Tom Heneghan)

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