Global stocks struggle
for footing after bond slip
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[September 15, 2016]
By Marc Jones
LONDON (Reuters) - World stocks
steadied at two-month lows on Thursday although bond markets stayed
in the red as two of Europe's top central banks keep their interest
rates pointing firmly downwards - a full eight years on from the
collapse of Lehman Brothers.
Europe's main stock markets in London, Frankfurt and Paris
spent most of the day struggling to stay in positive territory as
the region attempted to pull out of a five-day losing streak. [.EU]
Wall Street, which was marking the Lehman anniversary, was set for a
modestly higher start [.N] with a deluge of data from retail sales
to inflation and weekly jobless claims to take traders' minds off
this week's market drubbing.
Primarily the rout has been caused by nagging concerns that having
resorted to previously unthinkable measures like negative interest
rates and mass money printing, top central banks are now running out
of options to get their economies going.
It has been particularly evident in bond markets. Yields, which move
inverse to price, crept up again in Europe though the real power
driver - the 10-year U.S. Treasury yield - steadied at close to 1.71
percent as U.S. trading loomed.
"We are 150 percent focused on the fixed-income selloff," said State
Street's head of global macro strategy Michael Metcalfe.
"The market concern is that the central bank support is going to be
different going forward," he said, adding that tandem falls in
equity and bond markets pointed to "a big unwind of risk".
That theme of central bank policy effectiveness was live.
Switzerland's central bank kept its key interest rates deep in
negative territory and repeated that it was willing to intervene in
FX markets to keep down what it still sees as a "significantly
overvalued" Swiss franc.
The franc barely budged.
Sterling didn't move much either as the Bank of England stood pat in
London, having cut rates and ramped up its stimulus program last
month in a bid to limit any Brexit damage to the UK economy.

It repeated that it was likely to cut rates again towards the end of
the year but also acknowledged that "a number of indicators of
near-term economic activity have been somewhat stronger than
expected," and that growth probably wouldn't slow down as much as
originally thought over the rest of the year.
"The BoE is important in a broader sense for the market," said State
Street's Metcalfe, saying it sent "the message that at least one of
the major central banks is still being as easy as can be."
EMERGING PRESSURES
The yen inched higher as investors sought safe havens in the face of
a shaky atmosphere on stock markets, though the dollar was firmer
for the most part against the major and emerging market currency
pairs.
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The day's deluge of U.S. data includes August retail sales due at 8:30 a.m. ET
(1230 GMT) which are expected to show weaker car sales. Also due are reports on
producer prices, industrial output and weekly jobless claims.
A soggy Asian session had seen the Nikkei in Tokyo slide 1 percent
following Wednesday's uninspiring performance from Wall Street where the Dow
lost 0.2 percent and the S&P 500 shed 0.1 percent.
Both the U.S. Federal Reserve and the Bank of Japan hold policy meetings that
conclude next Wednesday. The BOJ is in particularly focus with it due to
comprehensively review its policies.

Sources say board members could debate cutting the bank's rates further as well
as making changes to its already massive asset-buying program.
Among commodities, Brent crude limped up 0.8 percent to $46.21 a barrel after
dropping 2.6 percent on Wednesday when data showing large weekly builds in U.S.
petroleum products offset a surprise draw in crude stockpiles. [O/R]
Metals markets were drifting for the most part with China's exchanges now closed
for the rest of the week for a public holiday, while gold <XAU=>, which
investors often see as a safe-haven asset, slipped fractionally amid the
cautious market mood.
Emerging markets continued to be buffeted by that caution too with key
currencies falling and a fifth day of falls for MSCI's closely followed
27-country EM index.
There was some good news for Ukraine though as IMF agreed after a delay of
almost a year to hand over the latest instalment of its $17.5 billion four-year
bailout although it wasn't quite as much as had been expected.
India's rupee <INR=> went on a wild ride after a television channel reported the
country's commerce ministry was calling for a devaluation to promote exports,
though that was later denied by the finance ministry. The currency initially
fell about 0.8 percent before making up ground to be about 0.3 percent down on
the day.
"The tailwind for asset prices is not as strong as it was," said Peter Kinsella,
head of emerging markets research at Commerzbank.
"We have had more hawkish rhetoric from the Fed, which has led to profit taking
in risky assets and all the high-beta stories in emerging markets have taken a
backseat."
(Editing by Hugh Lawson)
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