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 Nerves were still jangling in Europe and shares and bonds suffered
another pounding on fears the recent surge in yields, the euro and
energy costs could snuff out the only recently-formed hopes of a
solid euro zone recovery.
The regional FTSEurofirst was led down for a third straight day by
falls of as much as 1.2 and 1.8 percent for Germany's Dax and
France's CAC 40 as the euro hit its highest level since February.
Bond markets were at the centre of the rout as more heavy blows for
Germany's normally rock-solid Bunds put them on course for their
biggest weekly spike in yields in over a decade.
Italian and Spanish yields hit 2 percent for the first time this
year, French ones topped 1 percent and U.S. Treasuries, the
benchmark for borrowing costs globally, briefly broke 2.3 percent.
"There has been a massive repositioning over the last 10 days and it
is still ongoing," said Philippe Gudin de Vallerin, head of euro
research at Barclays in Paris.
"Some sales people say there has been major selling from Asia, but
from a fundamental point of view the move has certainly been
excessive. It is difficult to understand."
Wall Street was expected to start around 0.5 percent lower. London's
FTSE, Europe's biggest share market, meanwhile, was down 1.3
percent, with attention also on the day's national election that
remained too close to call.
Sterling was a shade lower against the dollar and markets barely
budged during the election campaigning, but the outcome will be
anything but dull.
Britain’s ability to hold on to Scotland and its place in the
European Union are both potentially up for grabs depending on which
party, or more likely parties, prevail.
"In many ways the process doesn’t really start until we know the
result and whether we have a ‘working’ government," said Nick
Lawson, a managing director at Deutsche Bank in London.
BUND AID
UK gilt yields nudged higher like most global bonds, but focus was
heavily on the euro zone as worries about Greece's future in the
bloc also lurked.
German 10-year bond yields jumped as far as 0.770 percent before
finding some support. Just a month ago they were at a record low of
0.05 percent and many were betting the European Central Bank's
trillion-euro bond-buying plan would turn them negative.
The reason for the turnaround in sentiment hasn't yet been
pinpointed although with oil back near $70 a barrel fuelling talk of
a rebound in inflation - Brent was at $68.25 at 1200 GMT - some
analysts argue the ECB is now more likely to end its QE early,
rather than extend it as previously suspected.
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Data from France and Germany released as markets opened added to the
economic uncertainty. German industrial orders figures rose less
than expected, with the country's economy ministry pointing to weak
foreign demand.
The extent of the bond market woes was underscored meanwhile as
eastern Europe's biggest economy, Poland, cancelled a debt auction
and its deputy finance minister warned they may not be restarted for
a few months.
DOLLAR DIVE
The dollar has been one of the other startling movers in recent
weeks. It was languishing near its lowest in over two months against
a basket of major currencies having come under renewed pressure from
disappointing data on Wednesday.
Friday sees the release of monthly U.S. jobs figures that are seen
as the best gauge of the giant economy's health. It is also crucial
for the Federal Reserve, and its chair, Janet Yellen, warned on
Wednesday that markets may not react well when U.S. interest rates
finally go up.
"We’re trying to ... communicate as clearly (as possible) about our
monetary policy so we don’t take markets by surprise," she said.
Asia saw fresh selling overnight too. MSCI's broadest index of
Asia-Pacific shares outside Japan fell 1 percent as shares retreated
in China, Hong Kong, Australia, South Korean and Malaysia.
The Shanghai Composite Index ended down 1.4 percent as fears of
fresh moves by regulators to reduce leverage in stock trading
extended its losses so far this week to 6 percent. Tokyo's Nikkei
lost 1.1 percent too.
Among commodities, short-lived profit taking saw oil drift off its
2015 high [O/R], and copper and most other industrial metals also
retreated from recent peaks as traders locked in some gains.
"Certainly this decline in the dollar index from the recent highs is
shaping a lot of price activity across the commodity complex," said
analyst Mark Keenan of Societe Generale.
(Reporting by Marc Jones; Editing by Mark Heinrich)
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