Stocks relinquish previous session’s gains

Stocks are relinquishing some of the previous session’s good gains as a strengthening yen chips away at risk appetite.

After a mixed performance out of Asia, the pan-European Stoxx 600 equity index is down 0.6 per cent as banks dip but firmer base metals prices help miners.

The S&P 500 in New York is losing 0.2 per cent to open at 2,080, after Macy’s became the latest retailer to disappoint investors.

The dollar index, which measures the buck against a basket of its peers, is slipping 0.3 per cent to 94.03, and Treasury 10-year yields are barely changed at 1.76 per cent as the soft showing in stocks underpins fixed income assets.

Ten-year German Bunds are steady at 0.12 per cent, only several basis points above record lows, while the euro is adding 0.3 per cent to $1.1407.

A weaker greenback and low implied borrowing costs are helping gold advance by $10 to $1,276 an ounce

In a note to clients, analysts at CitiFX said: “It has been a strange session which cannot be characterised with any single theme. Some may call it noise in FX, as market waits for the next trigger to give it direction.”

Indeed, the lack of fresh events means investors are treating current activity as mainly a reaction to what went before: in particular a burst of strength on Wall Street.

The S&P 500, which tends to set the global equity market tone, on Tuesday bounced 1.25 per cent, it biggest gain in two months, and on the second highest volume of the year.

Analysts and traders struggled to pinpoint the reason for the effervescence, instead citing a number of reasons for the bullishness.

Shares in energy groups jumped after oil rose sharply over supply concerns in Nigeria, where vandalism of oil infrastructure has cut output to its lowest in more than two decades. Brent crude initially dipped on Wednesday, but is now up another 0.3 per cent to $45.64 a barrel.

There was a rally in technology stocks after Amazon's shares hit a record high on an analysts' upgrade, and well-received quarterly results from Europe's Credit Suisse seemed to lift financials more generally.

Furthermore, new-found hopes that last week's jobs report provided an economic "Goldilocks" scenario that would help the Federal Reserve keep rates low for longer also was seen supporting sentiment.

Finally, the dollar/yen exchange rate, which is considered by some traders as a proxy for broader market risk appetite, continued to recover from its recent falls to 18-month lows.

The dollar, which on May 3 hit ¥105.52 moved above ¥109 on Wednesday. But now it is again under pressure, slipping 0.6 on the session to ¥108.61.

The renewed yen strength ensured Japanese stocks struggled to enjoy Wall Street’s overnight bounce, the Nikkei 225, which had risen as much as 1.5 per cent shortly after the open on Wednesday, finished up just 0.1 per cent.

Hong Kong’s Hang Seng shed 0.9 per cent, but on the Chinese mainland the Shanghai Composite rose 0.2 per cent, rallying after recent sharp losses on concerns about the health of the economy.

Helping calm nerves about demand was a bounce in China-based raw material futures. The rebar steel contract rose 6 per cent and iron ore futures on China’s Dalian Commodity Exchange snapped a six-day losing streak during which they fell 16 per cent, adding 0.4 per cent.

Copyright The Financial Times Limited 2016