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European stocks pare losses after rout in China

London - European shares put a selloff in Shanghai stocks behind them after economic confidence in the eurozone matched the highest level in four years and as speculation built the region’s central bank will boost stimulus next week. Treasuries rose as trading resumed after the Thanksgiving holiday.

The Stoxx Europe 600 Index recovered almost all of its 0.7% slide. The Shanghai Composite Index had tumbled 5.5%, its biggest retreat since the depths of a $5trn rout in August, dragging down emerging markets as industrial profits sank and regulators clamped down on brokers.

The Swiss franc slid against all of its major peers. Crude oil fell.

The better-than-estimated confidence data comes as investors assess the impact of a slowdown in China on the global economy. Yields from Spain to Germany have fallen to record lows on speculation ECB chief Mario Draghi will cut the deposit rate or expand its quantitative-easing programme.

That’s also weighing on the shared currency, which was set for its longest stretch of weekly declines versus the yen since the euro’s creation in 1999.

“A sizeable reduction in the deposit rate seems almost inevitable,” Commerzbank AG strategist Christoph Rieger and economist Michael Schubert wrote in a client note.

To send a clear signal to the market that QE remains ECB’s preferred tool for increasing stimulus, an extension in terms of size, duration and composition is also likely, they wrote.

An index of executive and consumer confidence stood at 106.1 in November, the European Commission said Friday, and October’s reading was revised to the same level from an initial 105.9. China’s industrial profits slid 4.6% last month, data showed on Friday, compared with a 0.1% drop in September.

The Stoxx 600 slipped less than 0.1% at 13:25. US equity-index futures were little changed, while the yield on 10-year Treasury note fell two basis points to 2.21%, with trading set to close early on Friday.

Stocks

Gains in automakers and builders offset declines in European energy producers and basic-resource companies. Trading volumes in the Stoxx 600 were 34% lower than the 30-day average.

Standard & Poor’s 500 Index E-mini futures expiring in December added 0.1%, with the gauge little changed on the week. The US equity market will shut at 13:00 in New York on Friday.

ECB looms

The 19-nation euro headed for its biggest monthly loss since March versus the dollar as monetary policy diverges between the ECB and the Federal Reserve.

A cut of 10 basis points to the eurozone’s deposit rate is fully priced in, according to futures data compiled by Bloomberg, which also shows a 15 basis-point cut is more than 90% priced in.

 The euro was at ¥130.05 on Friday, set to complete a seven-week slide of 4.8%. Europe’s common currency was at $1.0611, down 3.6% since October 30. It slid to $1.0566 on Wednesday, the lowest since April.

Germany’s two-year yield dropped to a record minus 0.426% on Friday, while the yield on similar-maturity Finnish notes fell to minus 0.384% and Spain’s slid to minus 0.049%, both all-time lows.

Euro-denominated investment-grade corporate bonds have returned 0.7% this month, compared with a 0.3% loss for comparable notes in dollars, according to Bank of America Merrill Lynch index data through Thursday.

The November gains for euro debt reversed declines for the year to a return of 0.4% from a loss of 0.3%.

High-yield bonds in euros have returned 0.5% in November, while US junk bonds have lost 2.4% amid low commodity prices.

The franc slid 0.7% to 1.0313 per dollar as investors speculated whether the Swiss National Bank will respond to ECB stimulus by intervening to weaken its own currency. SNB spokesman Walter Meier declined to comment.

Emerging markets

The MSCI Emerging Markets Index dropped 1.1% as benchmark gauges in China, Russia, Taiwan and the Philippines lost at least 1%.

Hong Kong’s Hang Seng China Enterprises Index of mainland companies dropped 2.2% to a two-month low. Some of the nation’s largest brokerages disclosed regulatory probes and two more companies said they’re struggling to repay bonds.

The probe into the finance industry comes as the government widens an anti-corruption campaign and seeks to assign blame for the selloff earlier this year.

A gauge of 20 developing-nation currencies extended this week’s decline to 0.9%, leaving it within 0.5% of a record low reached on September 28. Turkey, Russia and South Africa led losses over the period.

Turkey’s lira weakened for a fifth day, bringing its drop for the period to 3.3%, making it the worst performer among 31 major currencies tracked by Bloomberg, amid tension with Russia over Turkey’s downing of the warplane on Tuesday.

The rand slid 0.4% and was down 2.7% on the week in its biggest decline for the period in more than a month. Russia’s ruble dropped 0.7% on Friday, extending this week’s losses to 2.4%.

Commodities

Oil pared its first weekly advance in a month, with futures falling 1.8% to $42.27 a barrel in New York as Libya said it’s making progress to resume pumping crude after more than a year and Russia ruled out military retaliation against Turkey for downing its jet near the Syrian border.

Gold fell, heading for its sixth straight week of losses, the longest such streak since August. Bullion for immediate delivery was down 0.3% at $1 068.65 an ounce, according to Bloomberg generic pricing.

Nickel dropped 2.6% in London, zinc slumped 1.6% and copper was little changed.


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