European stock futures advance before Fed as pound strengthens
The yuan traded near a five-year low after MSCI Inc. decided to keep Chinese equities out of its benchmark indexes.
The MSCI Asia Pacific Index halted a four-day losing streak, helping bring an end to the steepest selloff in global stocks since January.
Shares in Shanghai reversed earlier losses, spurring speculation state-backed funds were supporting prices, and Japan’s Topix climbed from a two-month low.
The British pound strengthened, after sliding more than 1 per cent in two of the last three trading sessions, and the yen retreated from its strongest level since 2014.
Crude broke below US$48 (RM 196.46 196.46) a barrel after a report showed US stockpiles increased, while copper rose. Japanese bond yields plumbed new lows.
About US$2.5 trillion was wiped off the value of global equities in the past week and the pound tumbled as a slew of polls showed growing support for Britain to leave the European Union ahead of a June 23 referendum.
The vote is making investors wary before central banks in the US, Japan and the UK review monetary policy this week.
MSCI, whose emerging-markets index is tracked by some US$1.5 trillion of funds, said more improvement in access to China’s stock market was needed before the nation’s equities can be added to its benchmarks.
“While we get a bounce following the huge knockdown across markets, investors should probably sell into the strength ahead of the Brexit vote,” said Nicholas Teo, a trading strategist at KGI Fraser Securities Pte in Singapore. “There’s a lot of uncertainties out there.
A statement from the Fed tonight may help calm the market, but concerns remain on the timing of the rate hike.”
The Fed is expected to keep the benchmark lending rate unchanged when its two-day policy meeting concludes in Washington, though the central bank’s statement and Chair Janet Yellen’s comments at a press briefing will be scrutinised for clues on the likely timing of the next increase.
Futures indicate the odds of a move by July tumbled to 16 per cent from 53 per cent since the start of this month, damped by weak US payrolls data and turbulence in global financial markets.
Stocks
Futures on the Euro Stoxx 50 Index climbed 0.9 per cent as of 7.20am London time.
Contracts on the UK’s FTSE 100 Index advanced 0.3 per cent, after the gauge closed below 6,000 for the first time since February, and those on the S&P 500 Index were little changed. The US benchmark ended the last session at a three-week low.
The MSCI Asia Pacific Index was little changed, after sliding 4.4 per cent over the last four sessions.
Japan’s Topix climbed 0.4 per cent as the yen snapped a three-day advance and Hong Kong’s Hang Seng Index gained 0.3 per cent.
Toshiba Corp jumped more than 7 per cent in Tokyo as brokerages including CLSA Ltd turned more positive on the stock.
The Shanghai Composite gained 1.7 per cent, after earlier sliding as much as 1.1 per cent following the MSCI decision. China’s benchmark is still down 18 per cent for the year.
“It’s a sharp reversal so there has to be some government intervention,” said Francis Lun, chief executive officer at Geo Securities Ltd in Hong Kong.
“The Chinese government never wants to see the market falling too much.”
Currencies
The yuan fell as much as 0.1 per cent to a five-year low of 6.6047 a dollar in Shanghai, before trading little changed at 6.5928.
The pound strengthened 0.4 per cent to US$1.4166. It slid 1.1 per cent yesterday after five opinion polls in two days put the ‘Leave’ campaign ahead of ‘Remain’ in the run-up to the EU vote and as Britain’s best-selling newspaper, The Sun, backed a withdrawal.
The amount wagered on the currency falling to US$1.35 or lower — levels last seen in the 1980s — after the referendum has more than doubled during the past three months.
The yen weakened 0.2 per cent to 106.29 per dollar, after rallying almost 1 per cent over the past three sessions. It touched 105.55 on May 3, the strongest level since October 2014.
Commodities
West Texas Intermediate crude slipped 1.3 per cent to US$47.85 a barrel, falling for a fifth day.
Concern over a global glut in the commodity reemerged with the American Petroleum Institute reporting a 1.16 million-barrel increase in US oil inventories for last week.
Nigerian militants, whose attacks on oil infrastructure have sent the country’s output plunging to its lowest level in 27 years, also said for the first time they are considering peace talks.
Copper rose 1.1 per cent in London, while nickel advanced for the first time in a week.
Gold was little changed, after surging 3.4 per cent over the last five days.
Bonds
Yields on Japan’s benchmark government bonds were at record lows across tenors from two to 40 years.
The rate on notes due in a decade fell to an unprecedented minus 0.195 per cent, while 20-year and 30-year yields touched historic lows of 0.135 per cent and 0.21 per cent, respectively.
Ten-year US Treasuries yielded 1.62 per cent, after ending the last two sessions at 1.61 per cent, the lowest closing level since 2012.
The rate on similar-maturity German debt held close to zero, after sliding into negative territory for the first time yesterday as the UK’s potential exit from the EU fuelled demand for haven assets. — Bloomberg
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