Oil drops on storm relief, shares off, euro up

LONDON - A sharp fall in oil prices pushed stock market indices lower on Monday, while the euro hit a fresh peak against the yen and gained against the dollar in markets thinned by a local holiday in the UK.



By (Reuters)

Published: Mon 28 Aug 2006, 3:40 PM

Last updated: Sat 4 Apr 2015, 1:03 PM

The euro was helped by another reminder over the weekend that the European Central Bank is ready to act against any sign of resurgent inflation, a factor which also caused government bonds to open a touch weaker.

Oil prices fell on news that hurricane Ernesto, the first of the season in the Gulf of Mexico, had been downgraded to a tropical storm and that it was threatening the Florida Keys rather than U.S. oil facilities on the Gulf coast.

U.S. crude for October delivery was down $1.37 at $71.14 a barrel.

“Ernesto changed in two important ways over the weekend—the threat to oil is now fading quickly,” said Tobin Gorey of the Commonwealth Bank of Australia.

The retreat in oil prices hit energy shares, helping to push the FTSEurofirst 300 index down 0.28 percent by 0855 GMT.

Italian banks Banca Intesa and Sanpaolo IMI handed back some of their recent gains after their boards approved plans for a merger on Saturday, falling 1.2 and 2.1 percent respectively.

News of four separate bomb blasts in Turkey hit shares in airlines and travel-related industries.

Earlier in Japan, the Nikkei average fell 1.1 percent to its lowest close in more than two weeks after mobile phone company Softbank fell 5.6 percent on a brokerage downgrading its share price target and recent gainers succumbed to profit taking.

Euro hits record high vs yen

On the foreign exchanges, the euro hit a record peak versus the yen and pushed higher against other major currencies, with markets positioning ahead of U.S. data that could confirm the Federal Reserve’s moderating growth outlook.

Investors will scrutinise the minutes of the Fed’s meeting from Aug. 8 on Tuesday for insight into why it left its funds rate at 5.25 percent after boosting it 17 straight times.

The market will also look to a batch of U.S. economic data, including August payrolls on Friday and indications of price growth in the personal consumption expenditures index for July.

“People are looking ahead and seeing there is a lot of U.S. data coming this week—maybe they are a bit scared, or cautious, as it could confirm a slowdown,” Peter Fontaine, currency strategist at KBC in Brussels said.

The euro was up around a quarter percent against the yen at 149.83 yen, having hit a record peak earlier of 149.97 -- according to Reuters data.

Against the dollar, the euro rose to $1.2805, up around 0.45 percent.

It also benefited from news of ECB Executive Board member Lorenzo Bini Smaghi’s speech at a weekend conference in Italy when he said the ECB must act at once if there are any signs of inflationary pressures to maintain credibility with markets.

Those remarks encouraged traders to take profits on the euro zone government bond market after last week’s strong gains.

Yields on 10-year Bunds were up 1.2 basis points at 3.80 percent.

Slightly weaker than expected money supply data did little to change views that interest rates are on the way up.

Growth slowed to 7.8 percent in July from 8.5 percent in June but remained well above the ECB target of 4.5 percent.

”It’s still a very strong number. It’s quite clear that based on this figure, investors won’t change their view toward interest rate outlook in the euro zone,” said Kornelius Purps, fixed income strategist at HVB in Munich.


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