European Stocks, U.S. Futures Decline as Oil Retreats; Yen Gains

Bloomberg) -- European equities fell with U.S. stock index futures amid a retreat in crude oil prices. Chinese shares rallied after inflation data pointed to a pick-up in industrial demand in the world’s second-largest economy.

The Stoxx Europe 600 Index extended its run of four weekly declines as crude reversed a rally that earlier took it above $40 a barrel for the first time this month. The Shanghai Composite Index rebounded from a one-week low as a report showed producer prices increased month-on-month for the first time since September 2013. Japanese shares retreated as the yen headed for its longest winning streak since 2012. Gold climbed to a three-week high.
Global shares are trading the most in sync with crude since June 2013 in the run-up to an April 17 meeting at which major oil producers including Russia and Saudi Arabia are set to discuss a production freeze. That’s been good news of late for stock investors, with crude prices having climbed in all but one of the last eight weeks.
The U.S. earnings season unofficially kicks off later today, when Alcoa Inc. reports quarterly results after markets close. European peers including Tesco Plc and Sodexo SA are scheduled to release financial reports this week. Analysts are forecasting profit at Stoxx 600 companies will shrink in 2016, reversing earlier calls for earnings to improve.
The World Bank trimmed its 2016 economic growth outlook for developing East Asia and Pacific countries to 6.3 percent from 6.4 percent on Monday, while acknowledging that the region is faring relatively well despite tough global conditions. Central bankers and finance ministers will gather this week in Washington for spring meetings of the Washington-based lender and the International Monetary Fund, as well as a Group of 20 session.
Stocks
The Stoxx Europe 600 Index fell 0.7 percent as of 8:22 a.m. in London, while futures on the Standard & Poor’s 500 Index dropped 0.3 percent.
The Shanghai Composite Index rallied 1.6 percent as Baoshan Iron & Steel Co. and Wuhan Iron & Steel Co. jumped more than 6 percent. China’s producer prices rose 0.5 percent in March from February and were down 4.3 percent from a year earlier. The year-on-year decline was less than the prior month’s 4.9 percent slide and the 4.6 percent drop forecast in a Bloomberg survey.
“The producer-price index number has delivered a signal that the economy is picking up and indicates improving demand for industrial products,” said Wu Kan, a fund manager at JK Life Insurance in Shanghai. “That’s helpful to the overall GDP and we’ll probably see an improvement in upcoming data on industrial production and first-quarter GDP.”
Exporters and banks led a 0.6 percent loss in Japan’s Topix, dragging the gauge toward a two-month low. Foreign investors pulled funds from Tokyo’s stock market in the 13 weeks through April 1, dumping $46 billion of equities, as economic reports deteriorated and a resurgent yen pressured exporters.
“Yen strength is really hurting at the moment,” Steve Brice, chief investment strategist at Standard Chartered Bank, told Bloomberg TV in Singapore. "The extent of the strength we’ve seen has surprised pretty much everybody.”
Currencies
The yen advanced 0.2 percent, climbing for a seventh straight day versus the greenback amid a surge in bullish bets on the currency. Chief Cabinet Secretary Yoshihide Suga repeated that officials are watching the foreign-exchange market “with vigilance,” and will take appropriate action if necessary. Deutsche Bank AG and Bank of Singapore Ltd. said the yen remains at or below fair value.
“The yen is nowhere near overvalued,” making it hard to justify intervention, said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore. “Even though the yen has moved quite substantially against the dollar, you look at yen relative to euro and other currencies it hasn’t really strengthened all that much.”
South Korea’s won strengthened 0.6 percent versus the dollar, the best performance among major currencies. ING Groep NV and Commonwealth Bank of Australia -- the most-accurate forecasters of Asian exchange rates for the last quarter -- predict at least seven of 10 emerging-market currencies in Asia will appreciate by year-end.
Commodities
Oil climbed as high as $40.47 a barrel in New York, before trading 1 percent lower on the day at $39.32. Crude surged 6.6 percent on Friday, spurred by data showing an unexpected drop in U.S. stockpiles and a decline in the number of active rigs in the nation. Venezuela said the first step at the April 17 meeting in Doha between suppliers including Saudi Arabia should be to cap production.
Gold climbed 1 percent to $1,253,11 an ounce, set for the highest close since March 18. Copper was little changed on the London Metal Exchange, after gaining as much as 1.2 percent following the release of the Chinese inflation figures.
The monthly increase in China’s producer prices is “a sign of a pickup in industrial demand, supporting metals prices,” said Jia Zheng, chief metals analyst at East Asia Futures Co.
Wheat in Chicago fell 1.1 percent, extending last week’s 3.3 percent decline.
Bonds
The yield on 10-year U.S. Treasuries declined two basis points to 1.70 percent, after falling by five basis points last week. The securities are rallying even after net short positions in 10-year futures contracts rose last week to the highest since the period ended Nov. 3, data from the U.S. Commodity Futures Trading Commission show.
--With assistance from Zhang Shidong Emma O'Brien Adam Haigh Kevin Buckland Lilian Karunungan and Winnie Zhu To contact the reporter on this story: James Regan in Hong Kong at jregan19@bloomberg.net. To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net, Richard Frost
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