European shares drop, oil jumps on Goldman view

[May 16, 2016]  By Nigel Stephenson

LONDON (Reuters) - European shares fell in subdued, holiday-squeezed trade on Monday, unable to maintain the momentum of Asian stocks that shrugged off sub-par Chinese economic data to eke out modest gains.

Wall Street appeared set to open flat to marginally higher, according to index futures.

The yen fell against the dollar, helping Tokyo stocks higher, while Irish government bonds outperformed other euro zone sovereign debt, pushing borrowing costs to a one-month low after the once bailed-out country regained its third investment grade credit rating over the weekend.

Oil prices jumped more than 2 percent to their highest since November, partly after Goldman Sachs, one of the most bearish forecasters on oil over the past year, raised its short-term price outlook due to the effects of production outages. [O/R]

The pan-European FTSEurofirst 300 share index fell 0.5 percent. Volume was constrained with the Frankfurt Stock Exchange among Europeans bourses closed for a holiday. Britain's FTSE 100 dipped 0.3 percent.

The FTSEurofirst rose 0.6 percent on Friday after U.S. retail sales recorded their biggest monthly rise in a year.

Data from China over the weekend was less rosy. April's retail sales, factory output and fixed-asset investment all fell short of forecasts by economists polled by Reuters.

The numbers were not enough to prevent Chinese shares rising on Monday, however. The blue-chip CSI300 index closed up 0.7 percent and the Shanghai Composite 0.8 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.4 percent. Hong Kong's Hang Seng added 0.8 percent and Australian stocks  rose 0.6 percent.

Tokyo's Nikkei climbed 0.3 percent on prospects of more fiscal stimulus and on a weaker yen. Prime Minister Shinzo Abe told parliament a majority of Group of Seven leaders agreed more stimulus was needed to boost global demand.

The yen  edged down 0.2 percent to 108.87 per dollar and the euro  rose 0.1 percent to $1.1319. The dollar was flat against a basket of major currencies, having touched a three-week high on Friday.

"We suspect that Japan will get a lot of private support (from G7 members) for increasing quantitative easing," said Greg Anderson, global head of strategy at BMO Capital Markets.

IRISH BONDS IN FAVOR

In euro zone government bond markets, German 10-year yields  rose 0.6 basis points to 0.13 percent. Irish yields, however, fell 2.3 bps to 0.8 percent after Moody's Investor Services raised its credit rating to A3 from Baa1. It maintained a positive outlook on Ireland, which entered a three-year international bailout in 2011.

"The upgrade by Moody's expands the range of potential buyers of Irish bonds. Some investors, particularly in Asia require a minimum 'A' grade from all of the three big agencies," Cantor Fitzgerald strategist Ryan McGrath said.

Oil prices rose more than 2 percent after Goldman Sachs said disruption to supply had seen the market flip into deficit. It said U.S. crude could trade as high as $50 per barrel in the second half of 2016 although it cautioned the market would return to surplus in the first half of next year.

Brent crude hit $48.90 per barrel, its highest price since November. The international benchmark, which has risen nearly 80 percent from lows touched in January, last traded at $48.80, up 97 cents on the day.

The dollar's relative weakness helped lift copper prices. The metal  rose 0.4 percent to $4,64 per ton, having hit a 2-1/2-month low on Friday.

Gold rose 0.7 percent to $1,282 an ounce.

(Additional reporting by Shinichi Saoshiro in Tokyo, Anirban Nag and John Geddie in London; editing by John Stonestreet)

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