European shares drop, oil jumps on Goldman view

Reuters – May 16, 2016 – European shares fell in subdued trade on Monday, unable to maintain the momentum of Asian stocks that shrugged off sub-par Chinese economic data to eke out modest gains.

The yen fell against the dollar, helping Tokyo stocks higher, while Irish government bonds outperformed other euro zone sovereign debt, pushing borrowing costs to a one-month low after the once bailed-out country regained its third investment grade credit rating over the weekend.

Oil prices jumped to a 2016 high after Goldman Sachs said the market had flipped into deficit. [O/R]

The pan-European FTSEurofirst 300 share index .FTEU3 fell 0.5 percent. Traders said volumes would be constrained with the Frankfurt Stock Exchange among Europeans bourses closed for a holiday. Britain’s FTSE 100 .FTSE dipped 0.3 percent.

The FTSEurofirst rose 0.6 percent on Friday after U.S. retail sales recorded their biggest monthly rise in a year.

Data from China over the weekend was less rosy. April’s retail sales, factory output and fixed-asset investment all fell short of forecasts by economists polled by Reuters.

The numbers were not enough to prevent Chinese shares rising on Monday, however. The blue-chip CSI300 index .CSI300 closed up 0.7 percent and the Shanghai Composite .SSEC gained 0.8 percent.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.4 percent. Hong Kong’s Hang Seng .HSI added 0.6 percent and Australian stocks rose 0.6 percent.

Tokyo’s Nikkei .N225 climbed 0.3 percent on prospects of more fiscal stimulus and a weaker yen. Prime Minister Shinzo Abe told parliament a majority of Group of Seven leaders agreed more stimulus was needed to boost global demand.

The yen JPY= edged down 0.1 percent to 108.73 per dollar and the euro EUR= rose 0.1 percent to $1.1316. The dollar was flat against a basket of major currencies .DXY, having touched a three-week high on Friday.

“There may be rising scope of the BOJ (Bank of Japan) considering a more aggressive policy stance later on,” said Manuel Oliveri, currency analyst at Credit Agricole.

“It must still be kept in mind that inflation expectations as measured by five-year inflation swaps remain close to multi-year lows and that Governor (Haruhiko) Kuroda appears to make a bigger case of additional measures being considered should it prove necessary.”


In euro zone government bond markets, German 10-year yields DE10YT-TWEB rose 0.6 basis points to 0.13 percent. Irish yields IE10YT=TWEB, however, fell 3.4 bps to 0.79 percent after Moody’s Investor Services raised its credit rating to A3 from Baa1. It maintained a positive outlook on Ireland, which entered a three-year international bailout in 2011.

“The upgrade by Moody’s expands the range of potential buyers of Irish bonds. Some investors, particularly in Asia require a minimum ‘A’ grade from all of the three big agencies,” Cantor Fitzgerald strategist Ryan McGrath said.

Oil prices rose 2 percent at one point after Goldman Sachs said disruptions to supply had seen the market flip into deficit from surplus, though this was likely to reverse in the first half of next year.

Brent crude LCOc1, the international benchmark, hit a new high for the year of $48.90 per barrel. Brent has risen nearly 80 percent from lows touched in January.

Copper prices edged higher after more Chinese data showed real estate investment held steady in April. The metal CMCU3 traded at $4,630 per tonne, having hit a 2-1/2-month low on Friday.

Gold XAU= rose 0.6 percent to $1,280 an ounce.

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