Groggy start to year for shares

File picture: Alex Grimm

File picture: Alex Grimm

Published Jan 2, 2014

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London - World share markets made a groggy start to 2014 on Thursday, with investors using some disappointing Chinese manufacturing data as a reason to cash in on some of last year's gains.

After enjoying their best run in 15 years last year, US shares were expected to edge lower when trading begins.

Further gains depend on stronger growth this year, and investors were looking to US jobless claims and updated December PMI figures to gauge the improvement in the world's largest economy.

Manufacturing data from China overnight and on Wednesday proved disappointing.

Equivalent data that showed euro zone manufacturing running at its fastest rate since mid-2011 were not enough to lift shares.

The pan-European FTSEurofirst 300 was down 0.3 percent before the US open. It had started the day at a 5 1/2- year high.

Earlier declines in Asia had left MSCI's 45-country share index down 0.5 percent.

“We think it is a temporary blip in China, but that and also perhaps the data showing the contraction in Singapore's economy earlier, maybe gave the market a slight scare,” said ABN Amro economist Aline Schuiling.

Traders showed more appetite for both growth-attuned commodities and the dollar.

At the same time, they trimmed their holdings of safe-haven bonds.

Gold grabbed the limelight, climbing 1.5 percent to $1,220 an ounce.

The move recouped some of the losses that made last year gold's worst in three decades.

The buying spilled over into silver and copper, with dealers talking of demand from Chinese traders looking to pick up commodities on the cheap.

Three-month LME copper rose to its highest in seven months.

 

DOLLAR FLEXES MUSCLE

Among major currencies, the main theme remained weakness in the yen.

The euro also tumbled as the dollar flexed its muscles.

The greenback hovered near a five-year high versus the Japanese currency at 105.30 yen, with the focus on the Federal Reserve's gradually scaling back its bond-buying stimulus.

The euro dropped to 143.7870 yen, having clocked gains of 26 percent in 2013 to reach a five-year peak of 145.67.

Against the dollar, it saw its biggest drop since mid-November, sinking almost a euro cent to $1.3656.

“Today is the first day where fundamentals work out again ... That's why there is pressure on euro/dollar,” said Ulrich Leuchtmann, the head of currency research at Commerzbank in Frankfurt.

Dealers suspect the euro currency got support in recent weeks from the repatriation of funds by European banks and from the euro zone's expanding current account surplus.

But a general assumption remains that rising US Treasury yields will eventually lift the dollar.

Yields on US 10-year paper are up at 2 1/2-year highs of 3.03 percent.

Even shorter-dated rates have been rising as improving US economic data justify the Federal Reserve's decision to scale back its asset-buying.

A speech by outgoing Fed Chairman Ben Bernanke on Friday may offer some more guidance on the central bank's plans.

Prices of German Bund futures fell to their lowest since September 2013 on Thursday as investors offloaded the top-rated bonds in favour of riskier assets.

The premium Italian and Spanish bonds offer over benchmark German Bunds also sank to its lowest since mid-2011 as their manufacturing data beat expectations in both countries.

In oil markets, US crude futures were trading 81 cents lower at $97.62 a barrel, while Brent dropped $1.25 to just below $110.00. - Reuters

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