Shares fade, gold firms as caution resurfaces

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Bullsandbears

REUTERS

A bull and a bear styrofoam figurine.

London - Global shares made guarded gains on Monday, encouraged that investors were weathering last week's disappointing US jobs report but with enough event risk to keep the mood cautious.

Wall Street was expected to pull back around 0.2 percent when trading resumes, after enjoying its best two-day run in four months at the end of last week despite a second month running of uncertain job numbers.

The dollar and benchmark safe-haven bonds, including US Treasuries and German Bunds, were all maintaining tight ranges as investors looked ahead to a string of risk events later this week.

Top of the list, the new head of the Federal Reserve, Janet Yellen, delivers her first testimony to the House of Representatives on Tuesday and the Senate on Thursday.

Markets are hoping for assurances that policy will stay loose for a long time to come.

The dollar steadily recouped after a soft start to the European session as questions remained over Yellen's stance.

It was last trading at $1.3633 to the euro and was buying 102.20 yen, after bobbing as high as 102.41 in Asia.

“I think the market is bit on the dovish side of where it should be,” Saxo Capital Markets chairman Nick Beecroft said.

“Given the perception of Janet Yellen being a dove, if she doesn't come over extra-dovish it could be a bit of a disappointment.”

European markets pared back already modest gains.

Weakness on Spanish, Italian and Portuguese bourses offset modest gains in France and Britain.

Emerging-market tensions were also back in focus after credit rating downgrades late on Friday for Turkey and Ukraine, two of the countries most under fire in markets.

Turkey's lira and its main stock market suffered their biggest falls in a week.

Losses in Ukrainian assets were limited by its imposition of capital controls from Friday.

The Hungarian forint saw one of the biggest falls in the region, dropping 1 percent as mainly political concerns weighed on sentiment.

“The reason you often find the forint on the back foot is that it does still have very large external funding requirement, and the other issue is this monetary-policy tail risk,” said Christian Lawrence, an emerging markets.

“The entire monetary policy council is appointed by the government.”

YELLEN FROM THE HILL

Fed chair Yellen will be able to offer her own reading of last week's jobs report before lawmakers this week, which could give markets a fresh steer on the pace of stimulus withdrawal.

Analysts generally assume she will stick to the script of recent policy meetings, reiterating that a gradual decline in asset buying is likely as long as the economy continues to improve as assumed.

“We expect her to state that tapering is not on a pre-set course and the committee will adjust course as needed, particularly if the expected firming in growth and gains in payrolls do not persist,” Barclays analysts said in a note.

Yellen is also likely to repeat the standard forward guidance that the funds rate will remain near zero until the unemployment rate falls well below 6.5 percent, as long as inflation is subdued.

Treasuries were little changed. Yields on 10-year notes were a shade higher from their finish on Friday at 2.69 percent as US trading began.

In commodities, oil prices lost momentum, having initially extended their recent gains as cold weather across the United States kept eating into heating fuel stocks.

US crude made an early six-week peak at $100.46 a barrel but could not force its way past the December high at $100.75 and fell back to $99.70.

Brent futures gave up 21 cents of last week's gains to stand at $109.35 a barrel.

Spot gold was also firm at $1,274 an ounce. It still faces stiff resistance up to $1,278.

BEARS IN THE CHINA SHOP

In Asian trading, Japan's Nikkei led the way with a rise of 1.3 percent.

Shanghai also added 1.7 percent after its recent sell-off.

Major US data this week include retail sales on Thursday, which are expected to be little changed, partly because of bad weather and a rise in gasoline prices.

China releases trade numbers on Wednesday and consumer prices on Friday.

Analysts at Commonwealth Bank of Australia expect exports shrank in January, mainly because of the base effect after an outsized 25 percent increase in January 2013.

The timing of the Lunar New Year holiday can make trade flows volatile in January and February.

The euro zone releases its first estimate of fourth-quarter economic growth on Friday.

Forecasts are for a 0.2 percent increase in the quarter, which would keep up pressure for more action from the European Central Bank.

ECB President Mario Draghi gives a speech on “Progress Through Crisis?” on Wednesday, and markets will be sensitive to any hint of further accommodation to come.

The Bank of England issues its February Inflation Report on Wednesday, which is likely show price pressures are muted and so support the outlook for low rates.

BoE chief Mark Carney is expected to sketch out a new format for forward guidance after a quicker-than-expected fall in unemployment undermined an original plan, outlined in August. - Reuters


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