LDN - Business

Stocks up on U.S. bank hopes, dollar and yields slip

[January 13, 2017] By Jamie McGeever

LONDON (Reuters) - European and U.S. stocks looked to end a sluggish week on a high note on Friday, while the dollar headed for its biggest weekly decline in two months and U.S. bond yields eyed their longest run of weekly declines since July.

Investors largely shrugged off the biggest fall in Chinese exports since 2009, and resumed the "Trump" trades across equity markets based on higher growth expectations that had tailed off this week, with auto and bank shares leading the way.

Bank of America Merrill Lynch <BAC.N> kicked off the U.S. bank earning season, reporting a 47 percent rise in fourth quarter profit thanks to an upswing in market activity following the election of Donald Trump on Nov. 8.

JP Morgan Chase <JPM.N> and Wells Fargo <WFC.N> report Q4 results later in the day.

"U.S. bank earnings are going to be a big attraction," said Jim Reid, strategist at Deutsche Bank. "After the Trump trades disappointment this week ... this will likely impact the overall direction of markets."

Bank stocks led the charge in European trading, rising 1 percent <.SX7P> to lift the FTSEuroFirst 300 <.FTEU3> 0.6 percent. The index of euro zone bank stocks was up nearly 2 percent <.SX7E>.

The broader FTSEurofirst index was still down slightly on the week though, its first weekly fall in six.

Shares in Fiat Chrysler Automobiles <FCHA.MI> rose as much as 6 percent, recouping some of the previous session's 16 percent slump triggered by the U.S. Environmental Protection Agency's (EPA) accusations that the car maker illegally masked excess diesel emissions.

Germany's DAX was up 0.6 percent and Britain's FTSE 100 rose 0.4 percent, on course for its 12th record high close and 14th consecutive daily gain.

U.S. futures pointed to a slightly higher open on Wall Street. Thursday's slip into the red marked yet another failed attempt to lift the Dow Jones through the magical 20,000 points barrier.

Wall Street was chilled by Trump's failure to address economic policy plans this week at his first news conference since winning the Nov. 8 election, and growing fears that his proposed protectionist policies will choke global trade.

Chinese trade data on Friday poured oil onto those flames. December exports fell by 6.1 percent from a year earlier, meaning the overall fall in exports last year was the biggest since the depths of the financial crisis in 2009.

MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.1 percent, after rising to its highest levels since late October in the previous session. It was up 1.8 percent for the week.

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The German share price index DAX board is reflected in a glass at the stock exchange in Frankfurt, Germany, December 8, 2016. REUTERS/Ralph Orlowski

Japan's Nikkei stock index finished up 0.8 percent, though it still ended the week down 0.9 percent.

BOND YIELD RETRACEMENT

The symbiotic dance between the dollar and U.S. Treasury bond yields held firm on Friday. Both headed lower to end a week which has seen the dollar fall almost 1 percent and yields extend their longest downturn since last summer.

The 10-year yield slipped to 2.35 percent, down more than 5 basis points on the week and around 30 bps since the Federal Reserve raised interest rates in mid-December.

The dollar wallowed around five-week lows against a currency basket at 101.23, and down 0.9 percent for the week.

The euro rose a third of a percent to $1.0645, up three cents from last week's 14-year low of $1.0340 and poised to gain 1 percent for the week. The dollar was steady against the yen at 114.70 yen.

The dollar index had scaled 14-year peaks this month, on speculation that Trump's policies would spur growth and inflation, and spur the Fed to raise interest rates at a faster pace than previously expected.

But doubts have crept in.

"Bond markets continue to retrace from the yield highs set in the middle of last month," RBC Capital markets rates strategists wrote in a note to clients on Friday.

"The latest move (is) seen as a typical 'buy-the-rumor-sell-the-fact' reaction as Donald Trump's pre-inauguration press conference proved to be a disappointment in terms of forthcoming growth-boosting policies," they said.

In commodity markets, Brent crude and U.S. crude both fell 1 percent to $55.46 a barrel and $52.47, respectively. Spot gold ticked higher to $1,197.60 an ounce, having risen overnight to a seven-week high above $1,200. [GOL/]

(Reporting by Jamie McGeever; Editing by Mark Heinrich)

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