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 Asian and European stocks continued a two-day decline for equity
markets worldwide, with Europe's FTSEurofirst 300 down 0.3 percent
and heading for its worst week of the year. [.EU]
The slide of more than 3 percent is being compounded by this week's
jump in bond yields and a surge of more than 2 percent in the euro
to above $1.12, all of which are threatening to dampen the region's
recovery prospects.
Benchmark German Bund yields kept on climbing, having posted their
biggest daily rise in two years on Wednesday on robust German
inflation and a pick-up in ECB bank lending figures.
While inflation data for the euro zone showed the currency bloc
ended four months of deflation in April, with consumer prices
unchanged from year-ago levels, removing the threat of persistent
price declines as energy costs pushed higher, some cautioned that
the spectre of deflation was not entirely gone.
"A flat print is far from a sufficient reason to pop the champagne
corks," RBC Capital Markets economist Timo del Carpio said in a note
to clients. "There are still real risks associated with a prolonged
period of low-but-positive inflation rates across the euro area."
U.S. stock index futures were 0.2 percent lower, a day after data
showed that U.S. economic growth slowed to a crawl in the first
quarter, and ahead of earnings from Coca-Cola, ConocoPhillips and
Colgate-Palmolive.
Jefferies' global equity strategist Sean Darby said markets were now
having to readjust fast to the changing fortunes of the U.S. and
Europe.
"The U.S., the U.S. dollar and the U.S. economy were very heavily
consensus trades at the end of last year," he said.
"Trades around that, for example weak oil price, strong dollar, weak
euro, have also been very consensus over the last couple months.
That easy money has probably played itself out ... There is a bit
more unwinding to go."
The disappointing news on the world's biggest economy comes on top
of a worrying slowdown in China and persistent fears about Europe as
Greece scrambles to avoid bankruptcy.
The Federal Reserve said on Wednesday that the dip in the U.S.
economy was probably due to "transitory" factors. But, combined with
concerns about the labour market, traders all but crossed June to
September from the list of possible start dates for Fed rate rises.
Central banks and the cheap money they are pumping into the world's
still-wobbly economy remain the underlying theme for markets.
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New Zealand's central bank became the latest to say it could cut
interest rates if domestic momentum weakened.
Russia cut rates by one-and-a-half percentage points, having had to
jack them up last year following the slump in oil prices and the
Ukraine crisis.
The rouble firmed after the central bank announcement, having been
down prior to the decision, as there had been speculation that the
bank would opt for a bigger rate cut. At 1047 GMT the rouble was at
51.23 against the dollar, still down 0.7 percent on the day.
U.S. crude oil hit a five-month high as the dollar slipped to its
lowest since February and as more evidence emerged of a gradual
balancing of the U.S. domestic market.
OIL SURGE
Europe's slide mirrored overnight moves in Asia. MSCI's broadest
index of Asia-Pacific shares outside Japan fell 1.1 percent as South
Korean, Australian, Chinese and Hong Kong shares all suffered
losses.
Japan's Nikkei slumped 2.6 percent, extending losses after the Bank
of Japan kept monetary policy unchanged. The decision was expected
but disappointed some participants who had bet it may ramp up its
already massive stimulus measures.
"Risk has been building in the markets for weeks - the mass stock
market trading account openings in China, the rally in Europe as the
ECB ploughs on with its 65 billion euro a month QE programme," IG
market strategist Evan Lucas said.
(Additional reporting by Lionel Laurent; Editing by Louise Ireland
and Kevin Liffey)
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