European Stocks Fall While Euro, Bond Yields Jump on Strong Inflation Data--2nd Update
April 28 2017 - 5:10AM
Dow Jones News
By Mike Bird and Ese Erheriene
European markets opened lower Friday, while surprisingly strong
inflation figures in the region sent the euro and government bond
yields climbing.
The market-friendly result of the first round of elections in
France helped the region's equities start the week strongly, but
stocks have given back some of their gains as the week comes to an
end.
The Stoxx Europe 600 index was down 0.17% in morning trading.
U.S. equity futures were mixed, with the S&P 500 up 0.03% ahead
of the opening bell, and Dow Jones Industrial Average futures down
0.1%.
Official figures released midmorning showed the eurozone's core
inflation -- which excludes volatile food and energy prices -- at
1.2%, the highest level since 2013. Analysts were expecting core
inflation to rise by 1%.
Headline inflation reached 1.9%, touching the European Central
Bank's target for close to, but slightly below 2%.
The euro rose sharply on the news, hitting $1.093, up 0.6%.
Yields on 10-year German government bonds rose from 0.3% as markets
opened to 0.346% after the release.
The euro had dropped Thursday on European Central Bank President
Mario Draghi's insistence that the era of easy monetary policy
isn't over in Europe.
"There is clearly a risk that we could stand at the June meeting
with an ECB that changes its forward guidance in a more hawkish
direction provided the cyclical situation looks good," said
Pernille Bomholdt Henneberg, chief analyst at Danske Bank.
Despite the cooling in equity markets toward the end of the
week, European equity funds recorded their strongest inflows in
more than a year, according to EPFR Global data.
In the week to April 26, $2.4 billion entered European equity
funds, which included the jump in equity prices--particularly in
the banking sector--that came after the first round of the French
presidential election. Those net flows are the strongest into
European equities since December 2015.
"Europe is overweight financials, commodities and industrials
relative to the U.S.," said David Stubbs, global market strategist
at J.P. Morgan Asset Management.
"With stronger growth at home, a cyclical upswing globally, the
euro competitive and trade recovering you should see an uptick --
this should be the year that earnings growth arrives," he
added.
Bank of America Merrill Lynch analysts see continued gains for
European equities in the next year, expecting the Stoxx Europe 600
index to rise to 420 from 387 currently, a gain of around 8.5%, on
improved earnings.
Elsewhere in foreign exchange markets dollar was down across the
board in midmorning European trading, falling 0.23%according to the
WSJ dollar index, which measures the greenback against a basket of
international currencies.
The British pound also rose against the dollar, up 0.34% to
$1.294, touching its highest levels since early October, despite
British economic data showing a growth slowdown in the first
quarter of the year.
In Asia, Japan's Nikkei 225 index closed down 0.29%. Hong Kong's
Hang Seng Index fell 0.44%. China's Shenzhen A-share index bucked
the trend, rising 0.36%.
South Korea's Kospi closed 0.18% lower after President Donald
Trump said he wanted to renegotiate a trade deal with the country,
in an interview with Reuters.
Mr. Trump also said a major conflict over North Korea's nuclear
ambition is possible.
"The fact there's potential for a showdown with North Korea,
that's always going to worry investors in Japan," said Andrew
Sullivan, managing director of sales trading at Haitong
International Securities. "You [might] get the North Koreans put
into a corner and they feel they just have to do something...One
risks pushing them too far."
In the tech sphere, shares of Japan's Nintendo gained 2.1% after
it reported better-than-expected fiscal-year results. The company
recorded a net profit of Yen102.6 billion ($920 million) for the
year ended in March, beating street forecasts of Yen93.6
billion.
In the U.S., the S&P 500 and the Dow Jones Industrial
Average rose less than 0.1% Thursday while the Nasdaq Composite
gained 0.4%, hitting a fresh closing high.
Kosaku Narioka and Hiroyuki Kachi and
Yifan Xie
contributed to this article.
Write to Mike Bird at Mike.Bird@wsj.com and Ese Erheriene at
ese.erheriene@wsj.com
(END) Dow Jones Newswires
April 28, 2017 05:55 ET (09:55 GMT)
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