Trade tensions keep FX markets on edge as euro steadies

The euro stabilised on Monday after last week’s big losses but the threat of an escalating global trade war, a dispute in Germany’s governing coalition and a more dovish-than-expected ECB all weighed on the single currency.

After suffering its biggest drop in a month after the European Central Bank said it would keep rock-bottom interest rates on hold through the summer of 2019, the euro slipped again on Monday before recovering slightly to trade up 0.1 percent on the day at $1.1621, off its recent lows of $1.1543.

A decision by the United States on Friday to enact tariffs on $50 billion in Chinese goods was the latest salvo in a widening trade dispute between the world’s biggest economies, keeping broader markets on edge.

China’s official Xinhua news agency said Beijing would impose 25 percent tariffs on 659 U.S. products, ranging from soybeans and autos to seafood.

Currency reaction outside of specific highly trade-dependent Asian countries has been limited so far, but the worry for investors is that these tit-for-tat developments will eventually hurt global growth.

A broader trade conflict would be particularly troubling for Europe given President Donald Trump has signaled that he wants to slap tariffs on automobiles. European shares fell sharply on Monday.

Tensions with the governing coalition in Germany also weighed on the euro. Chancellor Angela Merkel’s Bavarian allies may defy her by implementing a plan to limit immigration at the German border and risk destabilizing her three-month-old coalition.

Euro tumbles as ECB vows to keep rate down

The euro fell a full cent against the dollar and government borrowing costs dropped on Thursday, after the European Central Bank vowed not to raise euro zone interest rates before the middle of next year.

The bank said it was pulling the plug on its 2.55 trillion euro stimulus program but after the Federal Reserve raised U.S. interest rates for the second time this year on Wednesday the ECB rate promise came as a relief.

The pan-European STOXX 600 index raced back into positive territory after a morning in the red, though basic resources stocks stayed down more than 1 percent .SXPP after weak data from big metals consumer China. 

Germany's DAX .GDAXI and France's CAC40 .FCHI led the stocks rebound, while the euro tumbled back toward $1.17 from well over $1.18 EUR=EBS [/FRX]. Euro zone government borrowing costs slid too as traders recalibrated prices for a longer period of sub-zero ECB rates.

Germany’s Bunds were offering 0.46 percent compared with 0.49 percent DE10YT=RR before the ECB statement.

U.S. Treasuries meanwhile were down to 2.94 percent US10YT=RR having briefly topped 3 percent overnight after the Federal Reserve had pushed up its interest rates.

The ECB had probably been too slow to reduce stimulus, Samra added, though recent weaker data showed Europe still had underlying issues.

The bank’s chief Mario Draghi holds a news conference at 1230 GMT to explain the decision.
His biggest complication is the increasingly murky economic European outlook, a developing trade war with the United States, a populist challenge from Italy’s new government and softening export demand.

Euro slides to near five-month lows on Italian political risk and U.S. bond yield rise

European Stock Markets

The euro hovered near five-month lows on Thursday as investors fretted about the demands of Italian populist parties and as a fresh rise in U.S. government bond yields underpinned demand for the dollar. 

The euro laboured close to the $1.18 mark at $1.1795 and down 0.1 percent on the day, slightly above the $1.1763 2018 low it hit on Wednesday.

The euro has slumped from more than $1.24 in April after a blistering dollar rally in which investors have bet that U.S. interest rates will need to rise further to curb inflation while other central banks postpone tightening.

That has forced investors with big positions against the dollar, which had been predicted to fall in 2018, to rush to unwind and cover their positions, pushing the greenback even higher.
Some analysts say the market is still complacent about the possibility of the dollar rising.

The dollar index paused at 93.373 below the 2018 high of

U.S. Treasury yields continued their recent rally with the 10-year government bond yield hitting 3.12 percent, the highest since 2011.

The euro is also suffering after reports Italy’s anti-establishment 5-Star Movement and the anti-immigrant League may ask the European Central Bank to forgive 250 billion euros of debt as the parties worked to draft a coalition programme.

Elsewhere sterling gained briefly after a media report that Britain would tell Brussels it was prepared to stay in the European Union customs union from 2021 onwards. The UK dismissed the report.

The dollar rose 0.2 percent 110.575 yen, its highest since January.

The Australian dollar added 0.2 percent to $0.7529 after gaining 0.6 percent overnight, buoyed by a rise in prices of commodities such as copper. Other commodity-linked currencies like the Canadian dollar also advanced.

Volatile emerging market currencies did not fare as well. Rising Treasury yields have enhanced the dollar’s appeal and raised global borrowing costs.

Emerging markets with current account deficits face the risk of fund outflows and their currencies declining further, analysts say.

Brazil’s real dropped to a two-year low against the dollar overnight while the Indonesian rupiah retreated to its weakest since October 2015 on Wednesday.

The Turkish lira and Argentina’s peso have been at the heart of the storm. Both traded down again but below record lows hit earlier in the week.

EURO AT 2018 LOW

The dollar rose to a new 2018 peak, extending its 2-1/2 week-long rally as investors unwound short positions against the currency and bet that the relative strength of the U.S. economy would feed through to a stronger greenback.

Against a basket of currencies the dollar, which has enjoyed a sudden reversal in fortunes as investors bet on more Fed rate hikes and a slower pace of tightening in the euro zone, rose 0.4 percent to 92.968, having shrugged off Friday’s weaker-than-expected jobs report.

The euro slid to below $1.19 versus the dollar,, down half a percent on the day and its weakest since Dec. 28.

In data from the euro zone’s largest economy Germany, industrial orders unexpectedly dropped for the third month running in March, suggesting factories there are shifting into lower gear.

The week ahead includes readings on the health of the Chinese economy and, U.S. inflation, and a Bank of England monetary policy meeting.

The soft German data supported euro zone government bond markets as investors continued to bet on caution from the European Central Bank.

Europe Stock Market News

Eurozone inflation may signal ECB's future moves better than its President Mario Draghi could: Last week, the ECB reiterated its commitment to backing out of its extremely accommodative monetary policy stance gradually, while further delaying an announcement on timing of any rate moves that traders had eagerly anticipated. 

From the central bank's perspective, that was the most significant move it could make without stoking fear that its confidence in the economy and/or financial system was flagging. Yet, this group finds itself in a difficult situation where it's falling behind the curve as the Fed continues to tighten and its own easing is yielding smaller and smaller results.

Where Draghi and his colleagues have to walk a fine line, data can be more blunt. This past session, the Eurozone first-quarter GDP growth slowed in-line with expectations. More important will be the region's inflation pace.

Earlier this week, German, Italian and Portuguese consumer price indices all weakened. Between the Eurozone's inflation and the European Commission's updated growth forecasts, we will have the full picture for ECB decision making.

European shares slide to two-week lows

European Share Markets

European shares fell to new two-week lows on Friday after Donald Trump said the United States would impose tariffs on imported steel and aluminium, prompting worries over a global trade war.

Such concerns sparked a broad sell off in Europe, sending the pan-regional STOXX 600 index down 0.7 percent by 0825 GMT.

Germany’s DAX fell 1.1 percent and Britain’s FTSE dropped 0.3 percent.

All sectors were trading in negative territory, with autos leading the drop and weighed down by a 3.7 percent slump in Fiat Chrysler shares on concerns that the U.S. tariff move could increase raw material costs. 

Steel and aluminium stocks were also generally lower with ArcelorMittal, Salzgitter and Norsk Hydro all down around 2 percent. 

Steel pipes maker Tenaris, which has production and marketing facilities in the United States, however, rose around 0.6 percent. 

Precious metal miners outperformed as investors sought refuge in safe-haves assets such as gold following Trump’s announcement. 

Randgold, Centamin and Polymetal all rose more than 1.7 percent. 

Swedish radiation therapy equipment maker Elekta, up 9.9 percent, led gainers on the STOXX after it reported above-forecast earnings, while IMI dropped 7.5 percent as its trading update disappointed.

The STOXX was on track to end the week, already marked by worries over faster rate hikes in the United States, down more than 2 percent.

Euro holds near three-year highs as rising yields fail to lift dollar

European Stock Markets

The euro held above $1.25 on Friday, continuing a strong week in which rising U.S. treasury yields failed to lift the dollar while the euro zone’s economic revival and expectations of monetary tightening made the single currency more attractive. 

Yields on 10-year U.S. Treasuries have risen to near their four-year high as economic growth and buoyant oil prices drive up inflation expectations and central banks start sounding more hawkish.
But the rise in yields, which should push up the dollar, hasn’t helped it so far.

A survey released on Thursday showed eurozone manufacturing continued to boom last month, bolstering expectations that the European Central Bank is on track to normalise monetary policy.

The euro traded flat against the dollar on the day at $1.2505, within sight of last week’s three-year high of $1.2538. For the week, the euro has gained around 0.6 percent.

Against a basket of currencies, the dollar was broadly flat as the market awaits non-farm payroll data due later on Friday.

Elsewhere, the dollar added to recent gains against the Japanese yen, helping it move away from a four-month nadir of 108.28 hit a week ago. The dollar rose 0.4 percent on the day to 109.82

On Friday, the Bank of Japan offered to buy an unlimited amount of JGBs with more than five to 10 years left to maturity at 2 basis points above the previous close. It also increased the amount of its planned buying in five- to 10-year JGBs to 450 billion yen from the previous 410 billion, an amount it had kept since late August.

Foreign exchange markets showed little reaction to the Japanese central bank’s move.

The Chinese yuan continued its recent rise against the dollar, notching up a high of 6.2773, a 2 1/2-year high. The yuan is up 0.8 percent for the week and was last trading at these levels in August 2015.

European stocks rally on U.S. shutdown deal, DAX hits record

European Stock Markets

European shares rose to new highs on Tuesday after U.S. senators struck a deal to end a three-day government shutdown.

Euro zone stocks .STOXXE reached their highest in a decade. Germany's DAX .GDAXI jumped more than 0.9 percent at the open and touched a record 13,596 points.

The DAX has posted gains in the Friday session. Currently, the DAX is at 13,481.00, up 0.30% since the close on Thursday. There are no eurozone indicators on Friday.

The US releases key employment numbers, led by nonfarm payrolls. The indicator is expected to soar to 311 thousand in October, after a decline a month earlier. However, wage growth could be in trouble, as Average Hourly Earnings is forecast to slow to 0.2 percent.

 No change is expected in the unemployment rate, with an estimate of a sizzling 4.2 percent. As well, the US releases ISM Non-Manufacturing PMI, which is expected to drop to 58.5 points.

The DAX posted strong gains this week, in response to the release of positive corporate earnings. Automobile sector posted strong gains, led by BMW, Daimler and Volkswagen. The DAX set another record high on Friday, and the index has been red hot, jumping 9.6 percent since early September.

The robust German economy has helped boost German stock markets, and with the economy expected to record a strong fourth quarter, the DAX rally could continue.

German numbers looked sharp this week, as the largest economy in the eurozone continues to perform well in 2017. Manufacturing PMI remained steady at 60.6, its highest level since April 2011.

The German labor market continues to impress, as unemployment rolls declined for a third straight month in October. Unemployment has now dropped in all but two readings since June 2015.

After an excellent GDP report last week, the US economy faces another report card on Friday. The US releases nonfarm payrolls and wage growth, and the readings could affect global stock markets.

Nonfarm payrolls posted a rare decline in September, a result of the hurricanes which battered the US. The markets are expecting job growth to surge in October, with an estimate of 311 thousand.

However, wage growth could weigh on the markets, as Average Hourly Earnings is forecast to slow to 0.2 percent.

Euro hits three-year high as Europe leads global optimism

The euro hit a fresh three-year high on Monday as optimism around growth buoys expectations of tighter policy from central banks, while the chance of a pro-European coalition in Germany also boosted confidence in the continent

With the world in general and Europe in particular showing signs of sustained economic growth, global stocks benchmarks jumped to fresh highs, even though investors are now pricing in the withdrawal of central banks’ extraordinary stimulus.

That view was given further fuel last week by an account of European Central Bank discussions which suggested policymakers could soon start preparing the ground for a reduction in support.

The single currency rose to $1.2227 at one stage on Monday, a price last seen in December 2014, just before the ECB first announced its massive government bond purchase program.

Nor is the ECB the only game in town: Bank of Japan Governor Haruhiko Kuroda offered a positive view on his nation’s economy and inflation on Monday, sending the yen to a four-month high against the dollar.

LONDON MARKET: FTSE 100 Hits New High Despite Micro Focus Drag

European Stock Markets

The FTSE 100 index was flat Monday midday, while the FTSE 250 was slightly lower, both retreating after setting new record highs earlier in the session.

The FTSE 100 is little-changed so far today, but having touched a new record at the beginning of the session the broadly bullish trend remains intact. Given the slew of trading updates this week we can expect a healthy dose of volatility in individual names, even if the wider index retains the 2017 characteristic of outward calm," said IG chief market analyst Chris Beauchamp.

London's index of large-caps remained flat despite facing a significant drag from Micro Focus International, as shares in the software maker hit their lowest levels since August after the firm's interim results disappointed traders.

Another company experiencing a "dose of volatility" on Monday was Mothercare, shares dropping to an all-time low after a weak Christmas performance and subsequent downgraded guidance. This comes as other London-listed retailers prepare to release their Christmas results over the coming weeks.

The FTSE 100 index was flat, just 1.68 points higher at 7,725.90 Monday midday, having hit a fresh all-time high of 7,733.39 earlier in the session.

The mid-cap FTSE 250 index was down 0.1% at 20,920.40, having reached its own all-time high of 20,984.76 earlier on Monday. The AIM All-Share index was flat at 1,067.66.

The BATS UK 100 index was up 0.2% at 13,125.20. The BATS 250 was up 0.1% at 19,022.78, and the BATS Small Companies was flat at 12,944.31.

In UK data on Monday, preliminary data from Halifax and IHS Markit showed house price growth slowed sharply in December and prices declined from the previous month.

The house price index rose 2.7% year-on-year following 3.9% increase in the previous month. The latest increase was the smallest since August, when prices grew 2.6%.

In the October-December quarter, house prices rose 1.3% from the previous three months ending September. On a monthly basis, house prices fell 0.6% from November,when they rose 0.3%. The latest fall was the first since June.


Blue-chip housebuilders were lower on Monday, with Taylor Wimpey down 1.4%, Persimmon down 1.1% and Barratt Developments down 0.9%. FTSE 250 homebuilders such as Crest Nicholson and Redrow were down 1.2% and 0.9%, respectively.

Sterling was flat against the dollar, quoted at USD1.3545 Monday midday, compared to USD1.3565 at the London equities close on Friday.

On the continent, the CAC 40 stock index in Paris was up 0.4% while the DAX 30 in Frankfurt was also up 0.4% Monday midday.

Survey results from European Commission on Monday showed eurozone economic confidence improved further in December, rising more-than-expected to 116 from 114.6 in November. This was the highest score since October 2000 and above the forecast of 114.7.

The industrial confidence indicator came in at 9.1 versus 8.1 a month ago. The expected score was 8.4.

In addition, preliminary data from Eurostat on Monday showed eurozone retail sales rebounded strongly in November, surpassing economists' expectations to grow a seasonally-adjusted 1.5%, from a 1.1% fall in October. Economists had expected 1.2% growth in November.

The latest sales growth was the fastest since October 2016, when sales grew 2%. Growth was led by a 2.3% increase in the non-food products segment, within which sales of textiles, clothing and footwear surged 5.9%.

The euro was quoted at USD1.1990 Monday midday, down from USD1.2033 at the European equities close on Friday.

Stocks in New York were called for a higher open on Monday, with the Dow Jones Industrial Average seen up 0.2%, and both the S&P 500 index and Nasdaq Composite called to open flat.

In the afternoon, US consumer credit change figures are at 2000 GMT. Additionally, there are several speakers from the Federal Reserve in Monday's calendar, with Federal Open Market Committee members Raphael Bostic to speak at 1740 GMT and John Williams at 1835 GMT. Boston Fed President Eric Rosengren speaks at 2100 GMT.

"Williams and Rostic will both be voters on the FOMC this year and so their views will be very closely monitored and could have an impact, although with Jerome Powell set to succeed Janet Yellen as Chair next month and a number of roles still to be filled, there remains an element of uncertainty when it comes to Fed policy going forward," noted Oanda senior market analyst Craig Erlam.

Later in the week, earnings season on Wall Street begins with fourth-quarter results on Friday from banks JPMorgan and Wells Fargo as well as asset management firm BlackRock.

On the London Stock Exchange at midday, Micro Focus International was rooted to the bottom of the FTSE 100, down 17%.

Reported revenue rose by 80% for the six months to October 31, to USD1.23 billion from the USD684.7 million recorded the same period in the prior year, USD569.8 million of this generated by HPE Software.

However, stripping out the merger with HPE, revenue fell 2.9% year-on-year to USD664.7 million from USD684.7 million. Ahead, Micro Focus said it expect revenue for the year to October 2018, its new year-end date, to fall between 2% and 4% on a pro forma basis.

Also lower on Monday was Paddy Power Betfair, down 1.9%. Morgan Stanley downgraded the bookmaker to Underweight from Equal Weight.

At the other end of the index of large-caps was G4S, up 4.8%. UBS upgraded the security services provider to Buy from Neutral, and promoted the firm to one of its top picks in the European Support Services sector.

Experian, also upgraded by UBS to Buy from Neutral and added as a top pick in the sector, was up 1.2%.

In the FTSE 250, BBA Aviation was up 3.1% after Citigroup raised the aviation services company to Buy from Neutral.

Towards the other end of the index was GCP Infrastructure Investments, down 2.5% at 123.77 pence at midday.

The fund said it intends to raise GBP60 million via placing new ordinary shares under the company's 2017 placing programme. The company plans to place new shares at 122.0 pence per share, a discount of 5.0p per share to the closing market price of 127.0p on Friday.

Turning to the other big faller of the day, Mothercare, IG's Beauchamp said: "Online sales are supposed to be a firm's salvation, but even here the reverse-Midas touch applies. Other retailers are not too badly affected, however, with many investors taking the view that Mothercare remains a special basket-case, unable to sort out its problems despite years of effort."

Mothercare was down 25% at 46.40p on Monday, having hit an all-time low of 42.05p earlier in the session. Shares in the firm traded as high as 134.00p in 2017.

The mother and baby products retailer said it expects profit for its financial year to fall after a disappointing Christmas, with UK trading particularly weak. Trading in the UK saw like-for-like sales down 7.2%. Online sales, which now represent around 42% of total UK sales, fell 6.9%.

Mothercare lowered its estimate for adjusted profit for the year ending March 25 to between GBP1.0 million and GBP5.0 million, from the GBP19.7 million reported in 2017.

McBride was another Main Market constituent having a poor day on Monday, dropping 13%.

The consumer goods manufacturer warned first half adjusted operating profit will be lower than board expectations due to lower sales and a number of cost challenges including raw materials, labour market pressures and transportation costs.

Carillion was up 18% after confirming it intends to presenting a business plan to creditors on Wednesday in an attempt to restructure its balance sheet.

Sterling slips ahead of British GDP data release

European Stock Markets

Sterling weakened slightly on Friday ahead of revised economic growth numbers for the third quarter and data on the size of Britain’s current account, with traders avoiding big positions before the holiday period. 

The prospect of further protracted negotiations to seal Britain’s exit from the European Union next year has weighed on the currency in December, although the pound is still up in the last two months after gaining 4 percent in November.

Analysts at Barclays said they expected the GDP number for July to September quarter to come in unrevised at 0.4 percent, in line with the consensus. The current account is forecast to narrow slightly when the data is released at 0930 GMT.

The pound was 0.1 percent weaker against the dollar at $1.336, while it was flat against the euro after retracing earlier falls at 88.67 pence per euro.

Some traders believe the pound will rally in 2018 if Britain agrees a Brexit transition deal and talks with the European Union progress faster than expected.

“The pound has been down on its luck amid a tough post-Brexit referendum backdrop. But the year ahead should see GBP bulls holding onto what they’ve got – especially now that we’re technically ‘halfway there’ when it comes to resolving Brexit,” ING said in a note.

Sterling steadies after British cabinet weakened by latest exit

European Stock Markets

Sterling traded flat on Thursday in a quiet market after falling initially following a survey that showed consumer sentiment had fallen to a four-year low and news that Britain’s deputy prime minister had been forced to resign. 

The pound had edged lower following the resignation but data showing British public finances had
strengthened in November helped the pound recover.

British Prime Minister Theresa May forced Damian Green to resign after an internal investigation found he had made misleading comments about pornography on computers in his office.

The resignation of one of May’s most trusted allies is a blow as she navigates the final year of tortuous negotiations towards Britain’s exit from the European Union in March 2019.

The next phase of the talks has weighed on the pound in recent days, and kept in check gains made after Britain and the EU agreed to move to the second phase of talks.

Traders said volumes were low ahead of the holiday season and in the absence of major economic news or Brexit developments, the pound was stuck in a trading range.

The pound was flat against the dollar at 1.338 after earlier slipping 0.1 percent. Against the euro the pound recovered and was flat at 0.88.

The GfK consumer confidence index showed British consumer sentiment at its lowest level since December 2013 as inflation-squeezed households took a gloomier view of their finances.

Britain’s economy has slowed this year, and IMF managing director Christine Lagarde said on Wednesday the economy was only likely to grow by 1.5 percent next year.

4 reasons Wall Street banks have the hots for Europe in 2018

European Stock Markets

U.S. stocks at record highs. Bitcoin soaring more than 1,700% in a year. And emerging markets equities on track for their best annual performance since 2009.

After a bumper 2017 for several assets, traders can easily be forgiven for worrying about financial bubbles and questioning if 2018 can bring any returns at all. But while money managers, by one measure, are the most bearish on stocks since the financial crisis, there’s one region that’s lagged behind this year and but could outperform in 2018: Europe.

In the year-ahead outlooks from the major investment banks, the continent emerges as one of their favorite plays, with four things swinging in the Europeans favor: 1) Earnings are great, 2) the economy is also great, 3) the ECB is still super accommodative, and 4) the worst of the euro strength is in the past.
“The euro area is enjoying a period of robust and above-trend synchronized growth, across both geography and industry,” Citi said in its year-ahead report, forecasting a 17% rally for the Stoxx Europe 600 SXXP, -0.15%  next year.

While many investors worry that we are late in the cycle, Citi economists think that we are ‘either later in the recovery phase of the business cycle or early in the boom phase’. They expect a pickup in investment, which is usually facilitated by bank lending

But even with some stellar economic data coming out of the region lately, the Stoxx Europe 600 index SXXP, -0.15%  has significantly underperformed other regions in 2017, up 8%. In comparison, the S&P 500 index SPX, -0.08%  is on track for a 20% 2017 rally and emerging markets 891800, -0.12%  are looking at a 29% gain.


That’s partly because the euro EURUSD, +0.0421% woke from its slumber this year and because Europe is relatively low on tech companies, which have been a key factor in the global rally.
Next year, however, the investment banks largely expect European stocks to race past their U.S. counterparts and perform more in line with emerging markets. Here’s an overview of their forecasts.

	Bank	European stocks	Potential upside*	U.K.’s FTSE 100	Potential upside*
J.P. Morgan	MSCI Europe: 1,720	+6%	7,750	+2.7%
Morgan Stanley	MSCI Europe: 1,700	+4.7%	7,780	+3.1%
Goldman Sachs	Stoxx 600: 420	+7.4%	8,000	+6%
Citigroup	Stoxx 600: 460	+17.6%	8,200	+8.7%
Deutsche Bank	Stoxx 600: 395	+1%	7,500	-0.6%
Société Générale	Stoxx 600: 385	-1.5%	7,000	-7.2%
UBS	Stoxx 600: 440	+12.5%	7,900	+4.7%
Bank of America	Stoxx 600: 430	+10%	N/A	N/A
Average	N/A	+7.2%	7,733	+2.5%
Compared to Dec. 19’s close

A 7.2% average forecast may not blow anyone’s socks off in a global 2017 context, but the strategists warn that the stellar returns seen this year are unlikely to be repeated in 2018.

After a long period of stagnation among European companies, there are finally signs of some serious profit growth. Forecasts of 15% earnings-per-share growth in 2017 are being thrown around, and strategists say at least 10% growth is realistic next year.

The upbeat forecasts for company profits are based on signs that Europe’s economic recovery finally has gained foothold, instilling more confidence in households and encouraging them to spend more. Additionally, companies are starting to invest more and borrow more money to expand sales.

“This [earnings recovery] is typical in what we have described as the ‘growth’ phase of the market, when earnings rather than valuation become the main driver of returns. Hence, we expect the profit outlook to be critical in determining future market returns,” strategists at Goldman Sachs said.

European shares inched lower as boost from U.S. tax overhaul fizzles out

European Stock Markets

European shares inched lower on Wednesday following a drop in the previous session when a sell-off on the bond market weighed and support from a landmark tax reform in the U.S. faded. 

The pan-European STOXX 600 benchmark fell 0.1 percent by 0933 GMT. Germany’s top share DAX index and the UK’s FTSE also fell by the same amount.

The Republican-led U.S. Senate approved the sweeping $1.5-trillion tax bill in the small hours of Wednesday, moving their party and President Donald Trump a step closer to the largest overhaul of the U.S. tax code in more than 30 years.

He said the European equity market was penalised by a strong euro, adding that any further increase in the bloc’s currency could lead to a downwards revision of earnings estimates, especially for the export oriented DAX index.

The STOXX 600 has risen more than 8 percent so far this year, while the euro zone STOXX index is up 11 percent.

Both indexes are below the peaks they hit at the start of last month as resurfacing political worries and a slowdown in earning growth has sparked some profit taking.

Steinhoff was the biggest loser on the STOXX on Wednesday, down 31 percent as the scandal-hit South African furniture retailer started losing credit lines from lenders.


Steinhoff said it was still unable to determine the scale of accounting irregularities which have wiped more than $10 billion off its market value over the past two weeks.
British American Tobacco was the biggest weight, down 0.8 percent following gains in the previous session.

Some analysts say BAT should benefit from the U.S. tax reform as the UK-listed tobacco company makes more than 40 percent of its profits in the States.

UK drugmaker Shire inched up 0.3 percent following a 3.8 percent surge in the previous session which traders atrributed to vague takeover rumours.

The top gainer was Stada, up 8.9 percent, after the German pharmaceutical company agreed a new profit transfer deal with its new majority investor, Nidda Healthcare.

Weaker financials also weighed on the broader market with bank heavyweights Banco Santander BNP Paribas and UniCredit all trading down, between 0.6 and 1.1 percent.

Dufry rose 3.5 percent, after activist investor Elliot took a 6 percent stake in the company.
RWE rose 0.6 percent, after the CEO of its Innogy unit resigned just days after a profit warning that hit shares in both companies. Innogy gained 1 percent.

FTSE edges up, Old Mutual jumps after unit sale

European Stock Markets

UK shares caught up slightly on Tuesday with their European peers’ gains from the previous session with Anglo-South African financial services group Old Mutual leading the index after it sold its Buxton UK wealth business for $800 million.

The FTSE 100 .FTSE was up 0.2 percent compared with the pan-European STOXX 600's rise of 0.1 percent.

World markets are waiting for U.S. lawmakers to pass sweeping tax legislation, expectations of which pushed Wall Street to new record closing highs with investors betting on a boost on profits, share buybacks and higher dividend payouts.

Old Mutual (OML.L) led the index higher, rising 4 percent after it sold its UK wealth business, run by veteran fund manager Richard Buxton, to private equity firm TA Associates for 600 million pounds ($803 million).

The company, which started as an insurance company in Cape Town in 1845, has decided to break itself up as regulatory constraints make the company complex to run in its current form.

Financials added the most points to the index - HSBC (HSBA.L) rose 0.3 percent, Standard Chartered (STAN.L) 0.7 percent and Prudential (PRU.L) 0.2 percent.

London-listed spreadbetters IG Group (IGG.L) and CMC Market (CMCX.L) which plunged during the previous session after regulatory threats to parts of their business, were still trading down about 1 percent.

Acacia Mining (ACAA.L) added 0.6 percent after it said it would sell its 2 percent royalty over the Houndé Mine in Burkina Faso for $45 million to Sandstorm Gold Ltd SSL.TO.

British drugmaker Indivior (INDV.L), which makes drugs that treat opioid addiction, was slightly down, losing 0.2 percent, after announcing operations to amend and extended debt facilities.

In the world of small market capitalisation, price comparison website operator GoCompare.Com (GOCO.L) posted the best performance, up 4 percent, after it agreed to buy The Global Voucher Group, which operates MyVoucherCodes.co.uk, and its units for 36.5 million pounds in cash.

European shares steady as tech-financials rotation continues

European shares see-sawed on Tuesday with sectors strongly diverging as a rotation from tech stocks into financials, bolstered by the U.S. tax bill, gathered pace.

Eurozone blue chips, fresh from their best day in five months, held steady, while the broader euro zone index edged up 0.1 percent as strength in banking and consumer stocks outweighed weak tech and mining sectors. 

Germany’s industrials and autos-heavy DAX outperformed peers, up 0.1 percent, while Italy’s FTSE MIB was buoyed by banks Intesa Sanpaolo and Unicredit .

Euro zone banks maintained positive momentum after their best gains in two months on Monday, up 0.3 percent. Societe Generale and BNP Paribas were among the biggest boosts to France’s CAC 40.

Following the pattern in Wall Street and Asian trading overnight, chipmakers led the tech sector down as investors switched from highly valued tech stocks into financials. 

Retailers were set for a rare positive day, the best-performing sector after Goldman Sachs upgraded UK supermarket Tesco to a “buy”, boosting its shares by 3 percent.

Provident Financial sank 15 percent in early deals after UK regulator FCA opened an investigation into its Moneybarn unit.

Euro climbs to session highs against dollar after upbeat German data

European Stock Markets

A round of strong German regional inflation readings that bolstered expectations for a rebound in the country’s consumer price growth has sent the euro climbing to session highs in mid-morning action in Europe

 The common currency was recently up 0.37 per cent at $1.1883 just after a batch of inflation data. It has since eased back to $1.1867.

A series of reports by Germany’s Federal Statistics Office showed that the year on year pace of price growth in four states picked up steam in November. That has sharpened expectations for a pick up in the overall inflation rate in Germany, the eurozone’s biggest economy, after a disappointment in October.

The euro has climbed 2 per cent on the buck this month, bringing its gains this year to 12.8 per cent, according to FactSet data. Investors have grown increasingly bullish on the shared currency thanks to the improvement in the bloc’s economy. In fact, bullish bets by US derivatives traders — seen as a proxy for the $5tn a day global currencies market — have come within 4 per cent of three-year highs, according to an analysis by Société Général

The weakness of the dollar this year has come as a surprise to many Wall Street investment houses, which came into the year expecting Federal Reserve rate rises would provide the world’s reserve currency with a tailwind.

 But political upheaval in Washington, coupled with persistently tepid inflation readings in the US, has kept pressure on bond yields.

The spread between 10-year Treasuries and German Bunds of the same maturity, an important factor for currencies traders, has actually fallen from 2.19 percentage points at the start of 2017 to 1.97 percentage points today.

Euro sits at 2-month highs as China stocks selloff eyed

European Stock Markets

The euro consolidated gains on Monday after hitting a two-month high in early Asian trades as a deepening selloff in Chinese stocks prompted investors to take profits on some long bets. 

Heavy selling of blue-chip shares dragged China’s stock markets sharply lower on Monday as rising bond yields spooked investors. But the fallout seemed to be limited to the mainland with Hong Kong’s stocks lagging the drop there and overseas bonds relatively more stable.

The Chinese stock market drop is reminiscent of the selloff that we saw in the summer of 2015 and that is causing some investors to become cautious going into the thin year end markets,” said Viraj Patel, an FX strategist at ING in London.

The euro fetched $1.1944, little changed from late U.S. levels last week after having hit a high of $1.1946, its highest level in two months.

The euro notched its biggest weekly performance in more than two months last week as some hedge funds bought the single currency in holiday-thinned trades last week, triggering some stop losses.

The common currency now faces a test at $1.1965. That level is the 76.4 percent retracement of its decline from a 2 1/2-year peak of $1.2092 touched on Sept. 8 to a 3-1/2-month low of $1.1553 set on Nov 7. It has gained 3.2 percent from that low.

The German business confidence index compiled by the Ifo economic institute hit a record high in November, in another sign of strong growth in the euro zone’s largest economy.

The upbeat data was followed by positive political developments after German Chancellor Angela Merkel - whose chances for a fourth term were plunged into doubt a week ago when three-way coalition talks with the pro-business Free Democrats and Greens collapsed - was handed a political lifeline by the Social Democrats.

In contrast, the dollar lacked momentum of its own as persistently low inflation is seen as undermining the case for the Federal Reserve’s rate hikes.

Market players are looking to the congressional hearing on Fed Chair nominee Jerome Powell on Tuesday.

The dollar index edged lower to 92.651, near two-month low of 92.675 touched on Friday. Sterling fetched $1.3329, holding near Friday’s two-month peak of $1.3360.

Stocks set for first week of gains in three, euro climbs

European Stock Markets

World stocks hovered below record highs on Friday, set to reverse two straight weeks of losses while the euro hit its highest levels in six weeks following stronger than expected economic data this week. 

The MSCI World Index, which tracks shares in 47 countries, was up 0.1 percent, set for a 1 percent gain this week. Its climb was underpinned by modest gains in Europe and Asia. 

Emerging stocks .MSCIEF were up 0.2 percent and the pan-European STOXX 600 was up 0.1 percent. .STOXX50

Surveys on Thursday covering Europe’s services and manufacturing industries outshone the most optimistic forecasts in Reuters polls, with factories having the second-best month in the index’s history.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 0.2 percent, as Hong Kong shares .HSI bucked the softness in mainland Chinese shares to gain 0.6 percent.
Stocks in mainland China dropped to three-month lows after big falls the previous day on concerns about fresh government steps to curb financial risks and rise in Chinese bond yields.

Japan's Nikkei .N225 ended up 0.1 percent after a market holiday on Thursday while U.S. stock futures ESc1 were little changed after shortened trading on Thursday.

In the currency market, the U.S. dollar remained under pressure after the minutes from the U.S. 

Federal Reserve’s latest policy meeting highlighted concern among some of the board members over persistently low inflation. The index that measures the greenback against a basket of peers was 0.2 percent lower. .DXY

The euro EUR= hit its highest in nearly two months at $1.1875 and was on track to mark its third consecutive week of gains despite failure of coalition talks in Germany earlier this week.

The leader of country’s Social Democrats is coming under growing pressure to drop his opposition to a new “grand coalition” with Chancellor Angela Merkel’s conservatives, with senior politicians arguing the party had a duty to promote stability.

A weaker dollar saw the British pound staying near a six-week high against the dollar ahead of British Prime Minister Theresa May’s visit to Brussels later in the day for talk on Brexit.[GBP/]

Buoyant risk appetite pushes euro up for a second day

European Stock Markets

The euro edged higher for a second consecutive day on Wednesday, recouping more than half of its losses sustained after the German coalition collapse as investors bought the single currency on expectations of strong economic growth.   

With risk appetite firmly on the front foot, with world stocks perched at a record high and market gauges of volatility heading back towards record lows, even commodity-linked currencies, such as the New Zealand dollar, which have suffered a recent beating found some support.

The euro rose 0.25 percent on Wednesday to $1.1769 against the dollar and not far away from a one-month high of $1.1862 hit last Wednesday.

The euro’s gains were also bolstered by the general trend of dollar weakness across the board due to softening U.S. yields.

Spreads between ten and two-year U.S. Treasury bonds narrowed to 57.4 basis points in the previous session, its flattest level since late 2007 and was trading roughly half a basis point higher at around 58 basis points.

The dollar index against a basket of six major currencies was down 0.2 percent at 93.77.

The index fell back from a one-week high of 94.165 overnight after a rally triggered earlier this week by a sagging euro stalled as long-term U.S. Treasury yields continued inching lower.

With outgoing U.S. Federal Reserve Chair Janet Yellen not offering any firm clues on where monetary policy in the world’s biggest economy is headed, the dollar’s near-term outlook remained uncertain.

Yellen stuck by her prediction that U.S. inflation will soon rebound but offered on Tuesday an unusually strong caveat: she is “very uncertain” about this and is open to the possibility that prices could remain low for years to come.