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Sydney - European stocks declined with crude oil and government bonds as an air of caution hung over financial markets with the UK hamstrung by political turmoil after last week’s vote to leave the European Union (EU).
The Stoxx Europe 600 Index swung between gains and losses after a two-day rally, while crude oil slipped after touching $50 a barrel on Wednesday. Government bonds dropped across developed markets and gold also lost ground.
Central bank efforts to contain the fallout from the Brexit decision helped global equities recoup more than half of the $4trn of market value wiped out over on Friday and on Monday. While the FTSE 100 Index and a Bloomberg gauge of global commodities have recovered pretty much all of their losses since the vote, the rebounds have stalled as political upheaval in the UK following Prime Minister David Cameron’s resignation prevents the country from entering talks to determine its future relationship with the EU.
"It would be premature to suggest the recovery in risk sentiment has solid legs," said Rodrigo Catril, a currency strategist at National Australia Bank in Sydney.
"Post-Brexit, the expectations of a lower-for-longer yield environment and the UK political vacuum until September are providing a sense of calm and they are providing an uplift to risk assets. So risk appetite is reappearing, but only cautiously."
Federal Reserve Bank of St. Louis President James Bullard is due to speak on Thursday in London and may shed light on the US interest-rate outlook after futures indicated the next increase is unlikely to come before 2018, having at the start of this month priced in a 53% chance of a move by July.
Taiwan’s central bank is forecast to cut its benchmark rate at a monetary policy review, while Mexico’s is seen raising borrowing costs, Bloomberg surveys show. Economic data scheduled for release include euro-area inflation and US weekly jobless claims.
Stocks
The Stoxx Europe 600 Index was down 0.2% as of 9:26 a.m. London time, while the FTSE 100 fell 0.3%. The regional gauge jumped 5.8% in the last two sessions, rebounding from an 11% plunge over the two trading days that followed the UK’s referendum on EU membership.
S&P 500 were little changed after a 1.7% surge in the index on Wednesday.
The MSCI Asia Pacific Index climbed 0.8% as benchmark stock indexes advanced across most of the region. Gauges in Australia, Hong Kong and Singapore all rallied more than 1%.
Singapore Exchange gained as much as 4% after UBS raised its stance on the stock to neutral.
AU Optronics Corporation climbed more than 6% in Taipei, buoyed by an upgrade in Credit Suisse Group’s recommendation on the stock.
Currencies
The offshore yuan touched its lowest level since January after Reuters reported that China’s central bank is prepared to allow the exchange rate to weaken to 6.8 per dollar in 2016 to support the economy.
It fell as much as 0.7% to 6.7021 immediately after the report, before paring declines to 0.1%. The Reuters report cited unidentified government economists and advisers involved in regular policy discussions.
Commodities
Crude oil fell 0.8% to $49.49 a barrel in New York, after jumping by almost 8% over the last two sessions as data showed US stockpiles are declining. Goldman Sachs Group said the price may slip below its $50 forecast in the second half of 2016 because of a cease-fire between militants and the government in OPEC member Nigeria.
Gold fell 0.2%, trimming its post-Brexit surge to 4.8%.
Corn in Chicago rose 1.1% before the US Department of Agriculture updates its quarterly reserve estimates on Thursday.
US corn inventories as of June 1 probably rose to a 28-year high for the date, while soybean stockpiles jumped 33% to the most for the second quarter since 2007, according to analysts surveyed by Bloomberg. Wheat supplies probably advanced 31% to the highest since 1988 for the date.
Bonds
US Treasuries due in a decade fell, pushing the yield three basis points higher to 1.54%. Similar-maturity German bund yields added four basis points to minus 0.09%.
