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 Middle Eastern stocks plunged overnight, catching up with the fall
across global bourses on Friday, while the prospect of a jump in
Iranian crude exports after the lifting of sanctions against the
country weighed heavily on oil.
With U.S. markets closed for the Martin Luther King Day holiday, any
hope equity bulls have for a fight back from the worst start to a
year ever rest with Europe, where the main indices have lost as much
as 10 percent in just two weeks.
In early trading on Monday the FTSEuroFirst 300 index of leading
shares was up 0.7 percent <.FTEU3>, Germany's DAX was up 0.6 percent
<.GDAXI>, France's CAC 40 was up 0.4 percent <.FCHI> and Britain's
FTSE 100 was up 0.3 percent <.FTSE>.
"We have seen a positive open in Europe, though that looks likely to
be put to the test if Asia's market performance is any guide," said
Michael Hewson, chief market analyst at CMC Markets in London.
"It's encouraging that, so far at least, European markets are
shrugging off Asia's losses," he said.
Gains at mobile telecoms gear marker Ericsson <ERICb.ST> and luxury
goods group LVMH <LVMH.PA> lifted the FTSEuroFirst off its 1-year
low struck on Friday.
 There was less to cheer about in Asia, however. MSCI's broadest
index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> fell to
its lowest since October 2011 and was last down 0.3 percent.
Japan's Nikkei <.N225> tumbled as much as 2.8 percent to a one-year
low before closing 1.1 percent lower. It has lost 20 percent from
its peak hit in June, meeting a common definition of a bear market.
MSCI's emerging stock index <.MSCIEF> dropped to 6-1/2-year low on
Monday, and was last down 0.3 percent on the day.
The volatile Shanghai Composite index <.SSEC> initially pierced
through intraday lows last seen in August before paring the losses
and closed up 0.4 percent. It was still down nearly 18 percent this
month.
On Wall Street the S&P 500 <.SPX> hit a 15-month low on Friday,
ahead of Monday's market holiday.
IRAN OIL EXPORTS EYED
In oil markets, Brent crude fell below $28 a barrel <LCOc1> for the
first time since December 2003 after international sanctions against
Iran were lifted over the weekend, allowing Tehran to return to an
already over-supplied oil market.
U.S. crude also slumped to 12-year lows <CLc1>, intensifying the
pressure on U.S. energy sector "junk" bonds. The Merrill Lynch
energy high yield debt index tumbled to its lowest in over five
years on Friday, posting its biggest weekly fall since October 2008
and the second biggest fall ever <.MERH0EN>.
"The lifting of key sanctions should allow it (Iran) to increase
crude exports this year by at least 500,000 barrels a day on
average, putting further downward pressure on oil prices in the near
term," Barclays analysts said in a note on Monday.
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Analysts at JP Morgan said that oil-producing countries will need to
sell large quantities of stocks and bonds this year to cover the
shortfall in their budgets resulting from the slump in oil prices.
They estimate sales of $110 billion bonds this year, up from $45
billion last year, and $75 billion of equities compared with $10
billion last year.
In currency markets the Chinese yuan rose 0.3 percent <CNH=> in the
offshore trade to 6.5966 per dollar, as Chinese authorities
continued to stamp down speculative yuan selling.
China will start implementing a reserve requirement ratio (RRR) on
some banks involved in the offshore yuan market, the People's Bank
of China (PBOC) said on Monday, in what appears to be its latest
attempt to stem speculation in the currency.
The safe-haven yen gave up some of its gains after having risen to a
five-month high of 116.51 to the dollar <JPY=> on Friday. It last
stood at 117.31. The euro also edged down against the dollar to
$1.0891 <EUR=>.
The U.S. dollar has struggled to gain much ground since the Federal
Reserve's historic interest rate rise a month ago, as the latest
data added to indications that U.S. economic growth braked sharply
in the fourth quarter.
Following that data, the Atlanta Federal Reserve's closely-watched
GDPNow forecast model showed the U.S. economy is on track to grow
0.6 percent in the fourth quarter, slowing sharply from 2.0 percent
growth in the third quarter.
Investors further cut back their Fed rate hike expectations, with
short-term interest rate futures <0#FF:> pricing in only one rate
hike by the end of year, compared with two hikes priced in at the
start of year.
In European bond trading, yields rose by around 1-3 basis points
across "core" markets such as Germany and "peripheral" markets like
Spain.
(Reporting by Jamie McGeever; Editing by Toby Chopra)
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