|
 Market volatility has surged in recent weeks as investors weigh the
timing of expected interest rate increases, especially in the United
States, against disappointing macroeconomic signals such as a
worse-than-expected inflation reading from China.
Investors sought refuge from cooling economic activity in safe-haven
government bonds across the euro zone, with German bund yields
hitting a record low. Pressure is growing on the European Central
Bank (ECB) to ease monetary policy further to spur growth in the
region.
"With deflation worries still very much at the fore of the euro area
and the pressure on the ECB to take further action in coming months,
bunds will remain underpinned in the near term," said Nick
Stamenkovic, bond strategist at RIA Capital Markets.
After a stable start to the European trading day, stocks were firmly
in the red by 1117 GMT (0717 EDT), with the MSCI All-Country World
index down 0.2 percent and the pan-European FTSEurofirst down
1 percent.
Britain's FTSE 100 benchmark stock index was also down 1 percent,
dragged lower by a 26 percent fall in the share price of drug
company Shire after U.S. rival and suitor AbbVie <ABBV.N> warned it
could reconsider plans to buy Shire.
Worries over the economic recovery also kept commodities under
pressure: Brent crude futures fell to a new four-year low of
$83.95 per barrel and U.S. crude oil fell to $80.60 per barrel,
stoking fears of further falls in inflation.
"The sharp decline in the price of crude oil is serving to increase
downside risks to inflation in the near-term," said Lee Hardman,
currency analyst at Bank of Tokyo-Mitsubishi UFJ.
The oil price fall also affected currency markets, where the U.S.
dollar hit a five-year high against the Canadian dollar and held
firm near a 11-month peak against sterling with investors resuming
bullish bets after a recent sell-off and staying away from
currencies grappling with slowing inflation.
[to top of second column] |
"Clearly the correlation between oil and commodity prices on the
Canadian dollar is playing out. The more oil prices fall, the more
dollar/CAD will rise," said Jeremy Stretch, head of currency
strategy, CIBC World Markets.
Emerging markets in Russia and the Middle East, which depend on oil
as a key revenue earner, were also hit: the rouble dipped to its
weakest level on record, Russian government
borrowing costs hovered at a five-year high and shares in Moscow
fell to near their lowest level since 2009.
It sparked new measures from Russia's central bank, including
another shift in its currency intervention threshold and auctions
for banks to deposit dollars, but analysts remained skeptical of
their success.
"If the oil price doesn't stabilize, there probably isn't much hope
for the rouble," said Richard Segal, an emerging market strategist
at Jefferies. The currency is down almost 20 percent this year.
(Reporting by Lionel Laurent; Additional reporting by Jamie McGeever,
Anirban Nag, Marc Jones and Marius Zaharia; Editing by Toby Chopra)
[© 2014 Thomson Reuters. All rights
reserved.] Copyright 2014 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
 |
