European markets pause on global growth concerns

European shares paused on Monday after their strong start to the fourth quarter while the dollar dipped towards three-week lows, with investors unconvinced the US Federal Reserve would raise interest rates this year.

Wall Street looked set to open flat, according to index futures, before a busy week of quarterly company results. Asian shares rose. Chinese stocks jumped over 3 per cent to seven-week highs and the yuan currency hit its strongest level since its surprise devaluation in August. Investors are looking to China’s trade figures on Tuesday to reappraise the extent of the slowdown in the world’s second-largest economy.

Despite a strong start to the fourth quarter for world stocks, investors remain concerned about the threat of slowing global growth even though central banks have pumped billions of dollars into their economies. “This global economic slowdown would be less of an issue if it was not being made worse by deflationary pressures and did not occur at a time when confidence in central banks’ ability to provide an effective solution is starting to be questionable,” said Didier Saint-Georges, managing director and member of the investment committee at Carmignac.

The pan-European FTSEurofirst 300 stock index fell 0.2 per cent but held near one-month highs. Germany’s DAX, however, added 0.2 per cent thanks largely to utilities RWE and EON, which rose 11 per cent and 7 per cent respectively after a government review concluded they had put aside enough money to decommission their nuclear plants.

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.8 per cent, extending an 11 per cent rise this month as investors unwound some of their long dollar, short commodity trades and emerging markets trades. China’s central bank took fresh steps to inject liquidity into the struggling economy and said the stock market’s correction “is almost over”.

The euro was up 0.2 per cent at $1.1380 and the yen 0.1 per cent stronger at 120.11 to the dollar. China’s yuan firmed as far as 6.3187 to the dollar, its strongest since the Aug. 11 devaluation.

"We could get some further weakness in the dollar versus the euro and yen but those two are mainly along for the ride. Most of the weakness will be concentrated on emerging currencies, said Stephen Gallo, a strategist with BMO in London." While the Fed debates when to raise rates, the European Central Bank is mulling looser policy. ECB President Mario Draghi said the bank was ready to adjust the size, composition and duration of its trillion euro asset-purchase programme.

German 10-year Bund yields fell 2 basis points to just under 0.6 per cent. Oil prices rose after Kuwait’s oil minister said economic growth and the removal of high-cost producers would lead to higher prices. Brent crude, the global benchmark, traded 16 cents higher on the day at $52.82 a barrel. Gold hit a seven-week high, boosted by the weaker dollar. The metal last traded at $1,167 an ounce.

Reuters