Dow Jones Newswires , 3 April 2017 04:28
European Morning Briefing: Unemployment, Manufacturing Data in Focus
Stocks seen mixed; EUR/USD 1.0679-82; German 10-Year bund yield 0.330%; Brent crude $53.46; gold $1242.72
-Schneider Electric Nears $1 Billion Sale of Data-Software Unit DTN
-Portugal Sells Novo Banco to Lone Star
-Abe Adviser Calls for Clean Break at Bank of Japan
-China Caixin Manufacturing PMI Edges Down in March
Watch For: EU, Germany, France, Italy and U.K. Manufacturing PMI; EU Unemployment rate; no major earnings expected
The eurozone's jobless rate resumed its long decline in February, figures to be released by the European Union's statistics agency are expected to show Monday. The four-year long drop in unemployment stalled in January, but economists expect a decline to 9.5% in February from 9.6% as the currency area's modest recovery continues.
That will leave the jobless rate at roughly double its U.S. equivalent, one reason why economists don't expect to soon see the pickup in wages identified by the European Central Bank as essential if it is to meet its inflation target.
The Bank of Japan should make a clean break from its current policy approach when Gov. Haruhiko Kuroda's term ends in spring 2018, said Nobuyuki Nakahara, an adviser to Prime Minister Shinzo Abe and an influential former BOJ board member.
Mr. Kuroda's successor should announce a "second phase" of the BOJ's quantitative easing program in which it scraps its attempts to control Japanese government bond yields and slashes its purchasing of Japanese government debt by at least half, Mr. Nakahara said.
The former central banker said that such a change in policy is needed because the yen's strength has been corrected, the labor market has tightened to reach full employment and wages have started to tick up. Under these circumstances inflation will return so the bank should scale back its intensive approach to trying to fuel inflation.
China's nationwide factory activity expanded at a slower pace in March, according to a private gauge that gave a weaker reading for the manufacturing sector than official data.
The Caixin China manufacturing purchasing managers' index fell to 51.2 in March from 51.7 in February, indicating a slower expansion of activity, Caixin Media and research firm Markit said Saturday.
The index still shows China's manufacturing sector has avoided a contraction of activity for nine-straight months. The 50 level separates an expansion in manufacturing activity from a contraction.
IG futures suggest the DAX will open 23 points higher, the CAC 40 11 points higher and the FTSE 100 11 points lower.
The second quarter kicked off with a lukewarm start for Asian equities Monday, with stock markets wavering between neutral and slight gains, ahead of Donald Trump's highly anticipated meeting with the Chinese premier later this week.
Japan's Nikkei Stock Average was up 0.4% in morning trade, shrugging off a stronger yen as the index rebounded from a seven-week low Friday. Australia's S&P/ ASX 200 was 0.2% lower, weighed down by disappointing retail sales data, while Korea's Kospi rose 0.3% and the Hang Seng Index was 0.5% higher. Chinese markets were closed.
Caution is growing over U.S. economic policies ahead of the meeting of U.S. President Donald Trump and Chinese President Xi Jinping later this week. Trump on Friday signed executive orders aimed at at curbing what he sees as unfair trade practices, which many see as targeted at China ahead of Mr. Xi's visit to the U.S.
U.S. stocks closed lower on Friday, but still posted sizable weekly and quarterly gains. Monthly performance was mixed.
The S&P 500 index closed 0.2% lower. Financials, which were the main laggards in March, lead the losses on Friday, down 0.7%.
Real estate shares, utilities and consumer discretionary stocks attracted buyers. Technology stocks were the best performers over the past quarter, up 12%.
The Dow Jones Industrial Average shed 0.3%. The blue-chip index was up 0.2% over the week, but down 0.7% over the month.
The oldest index is up 4.6% over the past quarter, marking the sixth consecutive quarterly gain, the longest since the fourth quarter of 2006.
French power-equipment supplier Schneider Electric is close to selling U.S.-based data-software business DTN to a Europe-based financial investor in a deal valued at around $1 billion, according to a person familiar with the matter.
The planned transaction, depending on final negotiations, could be announced in the next couple of days, the person said. The identity of the buyer couldn't immediately be learned.
Schneider acquired DTN, which distributes real-time weather information to farmers and other customers, as part of its EUR1.4 billion ($1.5 billion) acquisition in 2011 of Spain's Telvent. But in October, Schneider announced a strategic review of the business, and decided against trying to build a subscription-based business as a new source of revenue.
Portugal's government said Friday that it reached a deal to sell Novo Banco to U.S. private-equity firm Lone Star Funds, closing a long and chaotic process that started with the collapse of Banco Espirito Santo in 2014.
Dallas-based Lone Star will inject EUR1 billion ($1.07 billion) into Novo Banco for a 75% stake, while a resolution fund supported by the system's banks will hold the remainder. The setup could ultimately leave Portuguese taxpayers exposed to losses, which is what the country's central bank had tried to avoid when it imposed a resolution on the lender almost three years ago.
Banco Espirito Santo collapsed in August 2014 amid a record first-half loss triggered by its exposure to its troubled family-controlled parent company. The Bank of Portugal then broke up the bank into a "good bank," called Novo Banco, and a "bad" one, which kept the toxic exposure to the Espirito Santo empire.
The euro is likely to remain in a 1.0620-1.0700 range during Asia trade, amid a lack of fresh trading cues, says Osao Iizuka, head of FX trading at Sumitomo Mitsui Trust Bank.
Investors await the eurozone PMI, among other indicators due later today. However, the pair should show resilience to the data unless something very unusual figures come out, he says. Rather, the euro shows vulnerability to the eurozone politics, as well as to the ECB's policy stance.
The USD/JPY will likely trade in a 110-120 range this fiscal year, but may find it difficult to stay above 115 until the summer, says FPG Securities chief executive Koji Fukaya in a note.
"Even after the dollar breaks above Y115, the U.S. currency may find it difficult to go in only one direction," he says. And the USD/JPY also has the potential to slide amid the potential for political surprise he says, referring to doubts that U.S. will be able to push through a promised policy agenda and eurozone elections in key countries.
At 0250 GMT, EUR/USD was at 1.0679-82, USD/JPY was at 111.35-36 and GBP/USD was at 1.2538-40.
U.S. government bonds remained in a tight range Friday as traders weighed strong inflation data against indications that the Federal Reserve will still take a cautious approach to raising interest rates.
The yield on the benchmark 10-year Treasury note closed around 2.411% Friday, compared with 2.418% Thursday.
Yields initially ticked up in the morning after the Commerce Department said the personal-consumption expenditures price index rose 2.1% from a year earlier, marking the first time it has exceeded the Fed's 2% target in nearly five years.
Shortly after the inflation data was released, however, yields dropped as Federal Reserve Bank of New York President William Dudley said in a television interview that two more rate increases this year "seems reasonable" based on current economic conditions.
That kept to the forecast of three rate-increases in 2017 that Fed officials have communicated since December and that, by now, has been largely priced into the bond market.
It was also consistent with what other Fed officials have said in recent weeks, which is "basically that we're looking for more rate increases, but we are absolutely in no rush to raise rates at a much faster pace" given continued weakness in parts of the economy, said Gennadiy Goldberg, U.S. rates strategist at TD Securities in New York.
After their strongest week of 2017, oil futures took a breather in Asia trading.
Sentiment has turned again on the effectiveness and staying power of the OPEC-led production cuts, helping fuel last week's price rebound. In that, "higher oil prices may see energy stocks underbid," says Michael McCarthy of CMC Markets.
Nymex May WTI was down 4 cents at $50.56 a barrel and June Brent was off 7 cents at $53.46.
London spot-gold prices are slightly lower in Asia, though it remains near 1-month highs.
Investors have now discounted the chance of a more-aggressive pace of monetary tightening this year, and global political uncertainty is also supporting gold. Of late, South Africa President Zuma sacked his finance minister, prompting fears of an imminent downgrade.
Spot gold was down $1.06 at $1,242.72/troy ounce.
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