Stocks cautious after rocky China data, bonds fly high

[February 01, 2016]  By Marc Jones

LONDON (Reuters) - Markets got February off to a cautious start on Monday after a rocky January, as expectations of more cheap money from some of the world's top central banks were validated by fresh signs of weak global growth.

Friday's surprise move by Japan to negative interest rates sent its bond yields to new lows. Then came data that showed Chinese manufacturing slowed last month at its fastest pace in more than three years.

Europe saw a steady open, but London, Frankfurt and Paris turned 0.3 to 0.4 percent lower as surveys showed price cutting hadn't prevented euro zone factory growth from slowing as well.

That bolstered expectations the European Central Bank will cut rates again next month. German five-year bond yields fell to record lows of -0.318 percent as debt markets rallied in the euro zone and elsewhere.

"Rate cut speculation looks set to continue after the BOJ went negative," said Commerzbank rate strategist Rainer Guntermann.

In currency markets, Japan's yen started to steady at around 121.20 to the dollar and 131.40 to the euro. Friday's BoJ move set off its biggest one-day fall - roughly 2 percent- in over a year.

Oil-rich Canada's dollar fell half a percent against its U.S. counterpart after the weak economic data dragged oil prices off overnight highs of as much as $36 a barrel. Fellow oil exporter Norway's currency slipped 0.3 percent versus the euro.

The weakness in European stock markets was expected to extend to Wall Street later. Early futures prices indicated openings around 0.5 percent lower for the S&P 500 and Dow Jones Industrials.

A rise in the shares of major banks such as Bankia was offset by declines for telecoms after Nokia  settled a dispute with Korea's Samsung. The terms of the settlement disappointed investors.

OPEC DEBATE

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan had edged up a modest 0.1 percent, after losing 8 percent in January.

Australia and Japan led regional markets with gains of 0.8 and 2 percent, respectively. Chinese stocks slipped 1.5 to 1.7 percent after the weak data there.

January was the Shanghai market's worst month since the 2008 financial crisis with more than a 10 percent loss.

Monday's economic data from China added to worries about the world's second-largest economy and increased calls for more policy easing from China. Growth slowed in both manufacturing and services in China.

"In the short term, the surprise move by Japan will be a catalyst for global equities, but it only underlines the weakness of the global economy and we need to see some strong economics data for a sustainable rally," said Cliff Tan, head of global markets research with Bank of Tokyo-Mitsubishi UFJ.

Oil prices, the other major factor this year, remained a key focus. Brent dipped in early European trading, but at $35.84 per barrel <LCOc1> it was still up from Friday's level and more than 30 percent better than its 12-year low less than two weeks ago.

A senior OPEC source told a Saudi Arabian newspaper it was too early to talk about an emergency meeting of the Organization of the Petroleum Exporting Countries (OPEC).

Oil prices jumped last week after Russian energy officials said Saudi Arabia had made proposals to manage output and was ready to talk.

"We do not expect such a cut will occur unless global growth weakens sharply from current levels, which is not our economists' forecast," investment bank Goldman Sachs said in a report.

(Additional reporting by Marius Zaharia and Karolin Schaps, editing by Larry King)

[© 2016 Thomson Reuters. All rights reserved.]

Copyright 2016 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.