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Stocks rally stalls, euro falls on French politics

Mar 06 2017 14:00
Eddie van der Walt

London - Caution rippled through markets as Deutsche Bank pulled down European shares, metals slumped on Chinese growth prospects and the French presidential race continued to roil the euro.

The Stoxx Europe 600 index was dragged down by miners and banks as Deutsche Bank announced it was reversing course with an overhaul to raise capital. The euro erased earlier gains and German bonds rose after former prime minister Alain Juppe said he won’t step in to replace Francois Fillon on the Republican ticket in France’s frenetic presidential election. 

Markets appear to be coming off recent peaks as investors price in a near-certain March US interest rate increase by the Federal Reserve. Chinese Premier Li Keqiang warned of larger challenges ahead during his work report to the annual National People’s Congress gathering in Beijing. In Europe, the agenda is being set by politics, according to Pictet Asset Management.

“The ‘pothole’ is a political one with far right parties gaining ground in opinion polls ahead of both a Dutch and French ballots in spring,”  Luca Paolini, chief strategist at Geneva-based Pictet, said in a research note. “We are scaling back exposure to European stocks, albeit retaining our overweight stance.”

What’s ahead for the markets:

Mario Draghi probably won’t flinch at Thursday’s ECB meeting even after headline inflation reached its 2% target in February. He’s expected to keep QE going until the end of the year with underlying price pressures muted.

Other economic highlights of the week are industrial output for Germany, France and the UK, and German factory orders. US jobs data for February are on tap for Friday.

Employers probably added around 190 000 workers to payrolls, in line with the average over the past six months and a sign of steady job growth, economists forecast. European automakers gather this week at the Geneva Motor Show.

Philip Hammond’s UK budget arrives on Wednesday. The chancellor pledged on Sunday to set aside money to cushion the economy from Brexit, and said there won’t be any borrowing to fund spending commitments as he seeks to balance the books in the next Parliament.  Trump and Merkel meet on March 14

Here are the main moves in markets:

Stocks

The Stoxx Europe 600 lost 0.4% as of 12:49, with Deutsche Bank dropping 6.2%. Futures on the S&P 500 declined 0.3%. The benchmark index gained less than 0.1% on Friday to end higher for a sixth straight week.

Currencies

The Bloomberg Dollar Spot Index added 0.1%, after slipping 0.7% on Friday to halt a five-day rally. The euro declined 0.3% to $1.0587, the second-worst performer after Denmark’s krone.

Bonds

The yield on the benchmark 10-year Treasury note declined one basis points to 2.47%. German bonds were Europe’s best performers, as 10-year yields dropped three basis points to 0.33%. French benchmarks declined, pushing the yield of debt due in a decade up two basis points to 0.96%.

Commodities

Crude slipped 0.5% to $53.06 a barrel as an increase in US drilling countered a halt in some Libyan crude exports after clashes. Copper lost 0.9%, falling for a third day. Gold headed for the lowest close since February 14.

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