European stocks on the back foot

European stocks are on the back foot despite Asian bourses shrugging off more evidence of a slowing Chinese economy.

The dollar index is steady, while oil prices are climbing to seven-month highs as gold also rallies.

US index futures suggest the S&P 500 will add less than 0.2 per cent to 2,049 when the opening bell rings later in New York.

But the Wall Street equity gauge shed 0.85 per cent on Friday to record its lowest close in five weeks, and this is weighing on European bourses on Monday.

The pan-European Stoxx 600 is down 0.5 per cent, though trading is thinned by Germany’s market being shut for a public holiday. Providing support is a relatively steady resources sector as energy prices gain ground.

Brent crude, the international oil benchmark, is up 1.8 per cent to $48.71 a barrel, its most expensive since the start of November. The price has rallied strongly since hitting a 12-year trough around $27 a barrel in January as traders pared short positions on expectations that the low price had curtailed output in the US.

And the latest gain comes after Goldman Sachs said that supply disruptions from producers such as Nigeria and Venezuela meant “the oil market has gone from nearing storage saturation to being in deficit much earlier than we expected”.

Other industrial commodities are firmer, too, with copper adding 0.5 per cent to $4,644 a tonne in a generally upbeat base metals sector. In precious metals, gold is up $9 to $1,282 an ounce.

A slightly softer US dollar is also a help for buck-denominated assets. The dollar index, which measures the greenback against a basket of its peers, is easing 0.1 per cent to 94.55 having moved at the end of last week to its high for the month following some stronger-than-expected US retail sales and consumer confidence data.

Benchmark government bond yields are holding near multi-week lows, however. The 10-year US Treasury yield is up one basis point on the day but, at 1.71 per cent, is only a few basis points above its most meagre payout since February. Equivalent maturity German Bunds are steady at 0.13 per cent, also just several basis points above record lows.

Ten-year Japanese government bonds are yielding minus 0.11 per cent after data showed the country’s producer prices shrank 4.2 per cent year on year in April, the most in almost six and a half years.

The news adds to the pressure for more easing by the Bank of Japan, and the yen is down 0.2 per cent to ¥108.83, a dip that helped the exporter-sensitive Nikkei 225 stock average gain 0.3 per cent.

The firmer resources prices helped Australia’s S&P/ASX 200 to add 0.6 per cent, while Hong Kong’s Hang Seng gained 0.8 per cent and on the Chinese mainland the Shanghai Composite also rose 0.8 per cent.

These positive performances came despite data at the weekend supporting the thesis about a moderation of the Chinese economy. Industrial production grew 6 per cent year on year in April versus 6.8 per cent in March, while retail sales rose 10.1 per cent last month, slowing from a 10.5 per cent increase the previous month. Growth in fixed-asset investment moderated two-tenths of a percentage point to 10.5 per cent.

Hao Zhou, an economist at Commerzbank, said he was more surprised by the slowdown in retail sales.

“It appears that all the engines suddenly lost momentum, and growth outlook has turned soft as well. We have to acknowledge that China is still struggling, like what we see in other economies. That said, the policy tightening will be only a short-term phenomenon,” he said.

Copyright The Financial Times Limited 2016