Europe shares fade, dollar slips as investors look to Yellen

[March 29, 2016]  By Nigel Stephenson

LONDON (Reuters) - European shares traded flat on Tuesday while the dollar dipped as investors looked to a speech by Federal Reserve Chair Janet Yellen for clues to the interest rate outlook following weak U.S. data.

Wall Street, however, looked set to follow Asian bourses lower at the open, according to index futures.

As European markets reopened after a four-day Easter break, oil dropped below $40 a barrel with U.S. stockpiles forecast to hit record levels. This, signalling continued low levels of inflation, helped push low-risk government bond yields down.

But the focus was on Yellen, who was due to speak at the Economic Club of New York at 1530 GMT. Weaker-than-expected U.S. consumer spending data on Monday prompted analysts to suggest the U.S. central bank would be cautious about raising rates this year.

At its policy meeting earlier this month, Fed officials projected two rises in 2016. Some have since said the first could come next month.

San Francisco Fed President John Williams said on Tuesday that if the economy did as well this year as in 2015, it could easily handle two or more rate hikes this year.
 

"If Yellen does once again push back on any signs of urgency for the Fed to deliver their next hike, this may once again test how much the market wants to keep priced into the next few meetings," said Ned Rumpeltin, currency strategist at TD Securities.

The pan-European Eurofirst 300 <.FTEU3> stock index was all but flat, giving up earlier gains.

The index is down some 8 percent in 2016 after a turbulent quarter on financial markets triggered by concern over the health of the Chinese economy, uncertainty over U.S. rates and sharp fluctuations in the price of oil and other commodities.

Britain's FTSE 100 index  fell 0.2 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan  slipped 0.4 percent. Australian shares  finished about 1.6 percent lower while Tokyo's Nikkei closed 0.2 percent lower as the week U.S. data rattled sentiment towards exporters.

China's blue-chip CSI300 index  fell 1.1 percent and the Shanghai Composite Index  lost 1.3 percent.

The dollar, which slipped on Monday on the soft data, dipped 0.1 percent against a basket of currencies.

The euro rose 0.1 percent to $1.1208 although the Japanese yen  fell 0.2 percent to 113.65.

CRUDE DROP

Brent crude oil  fell more than $1 to $39.23. A preliminary Reuters survey of analysts showed U.S. oil stockpiles measured by the American Petroleum Institute were expected to reach record highs.

Oil prices are up some 50 percent from 12-year lows around $27 touched in January but the rally has eased in recent days.

"The amount of verbal intervention, which has obviously helped the market greatly over the past two months, combined with a production slowdown in the U.S., has probably taken (oil) as far as it can, now the market really wants to see some action," Saxo Bank senior manager Ole Hansen.

Cheap oil has helped depress global inflation. In the euro zone, long-term expectations for price rises, stand at 1.44 percent, way below the European Central Bank's inflation target of just under 2 percent.

Yields on German 10-year government bonds, the benchmark for borrowing costs in the euro zone, fell 3.3 basis points to 0.15 percent.

Gold dipped but held above a one-month low hit on Monday as the weak U.S. data dented prospects of an immediate U.S. rate hike. The metal traded at $1,217.80 an ounce.

(Additional reporting by Lisa Twaronite in Tokyo, Anirban Nag, Atul Prakash, Amanda Cooper and Marius Zaharia in London; Editing by Alison Williams)

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