Stocks rise, yen slides as risk appetite returns

LONDON - Global shares rose on Monday, supported by signs of economic strength and ongoing merger and acquisition activity, while crude oil fell below $60 a barrel on expectations of warmer US weather and ample supplies.

By (Reuters)

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Published: Mon 12 Mar 2007, 4:56 PM

Last updated: Sat 4 Apr 2015, 10:48 PM

Increased appetite for risk weighed on the low-yielding Japanese yen and on government bonds, which extended a sell-off sparked by Friday’s solid US jobs report.

By 0950 GMT, the FTSEurofirst 300 index of leading European shares was up 0.3 percent at 1,495 points, a fifth straight day of gains as markets clawed back losses from the start of the month sparked by fears of a sharp US slowdown, a plunge in Chinese stocks and geopolitical jitters.

Patrik Schowitz, a global equity strategist at HSBC, said it appeared money that had been waiting on the sidelines was re-entering the market. ‘The widespread consensus is that this was a welcome correction after an incredibly long run...but when you get such a strong consensus that it was all just a storm in a teacup, that’s what worries me more than anything else.’

Takeover activity also kept markets bubbling, with Dutch drugs and chemicals group Akzo Nobel surging 15 percent after agreeing to sell its Organon BioSciences pharmaceuticals business for 11 billion euros ($14.4 billion).

In the telecoms sector, state-controlled Swisscom offered 3.7 billion euros to buy Italian broadband operator Fastweb.

‘Earnings in the United States and Europe are robust, and M&A and private equity activity hasn’t gone away,’ said UBS European equity strategist Nick Nelson.

‘There could potentially be more volatility in coming days but in the medium term markets should be higher than they are today, and we see a 10 percent return in equities this year,’ he said.

Crude falls

Energy stocks underperformed as US light crude fell below $61 a barrel on forecasts of warmer weather in the United States and as investors saw OPEC keeping output steady at its meeting this week.

‘The weather forecast for warmer temperatures in the US is very bearish for the market,’ said Dariusz Kowalczyk, an analyst at Hong Kong-based CFC Seymour Ltd. ‘Oil prices have followed weather forecasts very closely this year and forecasts of weaker demand for heating oil will push crude prices lower.’

Other commodities such as copper and gold were modestly firmer but government bonds suffered as investors scaled back expectations for cuts in US interest rates.

The June Bund future was down 13 ticks to 115.74.

Renewed confidence in the health of the US and global economies following the solid US non-farm payrolls report on Friday encouraged a resumption of currency carry trades, which weighed on the yen.

The yen bounced strongly during the early part of March on fears that a fall in riskier assets would prompt traders to close off trades made by borrowing low-yielding currencies like the yen and the Swiss franc to buy higher yielding assets.

But the rebound in equity and emerging market assets helped the tide turn back against the yen.

‘The yen has weakened further this morning, euro/Swiss is essentially back to pre-correction levels. Carry has made a strong comeback over the latter part of last week,’ said Teis Knuthsen, head of FX and Fixed Income Research at Danske Markets in Copenhagen. The euro was up 0.2 percent versus the yen at 155.55, while the dollar traded at 118.15 yen.

The euro rose 0.4 percent to $1.3170, drawing support from last week’s interest rate rise from the European Central Bank and hints by central bankers that further rises were likely.

Sterling hit a session high after data showed UK producer prices rising more sharply than expected in February.

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