Tuesday 15:30 BST. US and European equity markets are on the back foot again, with energy and financial stocks under pressure as oil prices slide and investors take note of some dovish Federal Reserve comments that eased anxiety over US monetary policy
Benchmark bond yields are mixed while the dollar is gaining against the yen and pound. Gold is off $2 to $1,325 an ounce.
After a mixed Asia-Pacific session, the pan-European Stoxx 600 index is down 0.6 per cent, its fourth successive fall, although softer sterling is supporting London-listed foreign currency earners, limiting the FTSE 100’s dip to less than 0.2 per cent.
In New York, the S&P 500 is down 1.2 per cent to 2,132 in mid-morning trade.
The Wall Street barometer — which tends to set the tone for global sentiment — has experienced some savage volatility in recent sessions.
It fell 2.5 per cent on Friday after Eric Rosengren of the Boston Fed warned that the US economy ran the risk of overheating if rates were kept too low for too long, comments that sparked traders’ fears that the Fed may tighten policy this month despite some recent soft data.
The S&P 500 then rebounded 1.5 per cent on Monday, as some investors thought the sell-off was overdone, extending its recovery after Fed governor Lael Brainard reiterated her dovish stance and urged caution over any decision to lift borrowing costs.
With Ms Brainard believed to be the last Fed speaker before the central bank entered purdah ahead of its September 21 decision, the market now feels it is less likely the US monetary guardian will confound expectations by tightening policy.
Benchmark 10-year Treasury yields, which brushed 1.70 per cent early on Monday, are up 1 basis point at 1.68 per cent, while equivalent maturity German Bunds are easing 1bp to 0.04 per cent.
Futures markets, which at the end of last week were pricing in a 30 per cent chance of a 25bp rate hike this month, now see just a 22 per cent likelihood of such a move.
This pullback in the mooted pace of Fed tightening boosted broad risk appetite but weakened the dollar on Monday. The buck is mainly stronger in the new session, however, with the euro becalmed and the yen 0.3 per cent softer at ¥102.16. Sterling is down 1 per cent to $1.3198 after UK inflation rose less than expected.
The firmer dollar is not helping buck-denominated industrial commodity prices, with base metals mixed and Brent crude dipping 2.2 per cent to $47.25 a barrel, the latter also forced lower by the International Energy Agency warning of a persistent oil glut.
The moves come despite some generally better data on the Chinese economy that might normally support raw material prices.
Industrial production grew 6.3 per cent year-on-year in August, up from a 6 per cent pace in July and slightly ahead of expectations. Retail sales rose 10.6 per cent from a year earlier, up from July’s 10.2 per cent clip and against expectations it would stay the same. Growth in fixed asset (excluding rural) investment was steady at 8.1 per cent year-on-year, beating expectations of 7.9 per cent.
“The upshot is that today’s data fits with our long-running view that the delayed impact of earlier policy easing means that a stronger second half to this year is likely. Admittedly, with further monetary easing unlikely in the near-term, this uptick in economic activity is likely to fizzle out going into next year,” said Julian Evans-Pritchard at Capital Economics.
“Nonetheless, the latest evidence of a pick-up suggests that recent concerns that policy easing had failed to provide any noticeable boost to the economy were likely somewhat premature,” he added.
The Shanghai Composite rose 0.1 per cent and the technology-focused Shenzhen Composite gained 0.6 per cent. But Hong Kong’s Hang Seng fell 0.3 per cent, losing more ground after Monday’s 3.4 per cent drop — its worst since February.
Elsewhere, Japan’s Nikkei 225 climbed 0.3 per cent but Australia’s S&P/ASX 200 fell 0.2 per cent.
Additional reporting by Peter Wells in Hong Kong.
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