By Barbara Kollmeyer, MarketWatch , Josie Cox
Thin trade likely
European stocks edged higher on Monday, following a week of some
of the largest losses in months, though trade was expected to be
volatile and thin throughout the session due to market holidays in
the U.K. and Japan.
Bucking an earlier, weaker trend, Germany's DAX 30 and France's
CAC 40 rose 0.9% and 0.2% respectively, while indexes in southern
Europe also perked up.
Revised data showed Germany's purchasing managers index coming
in better than expected at 52.1 in April, against a forecast of
51.9.
Last week, the German and French exchanges fell 4.9% and 4.2%
respectively, as investors abruptly distanced themselves from some
of the most successful trades so far this year, fearful that the
rally in stocks, bonds and the U.S. dollar may have become
dangerously overdone.
Last week's shift also saw German government bonds, or Bunds--
buoyed by ferocious demand throughout the first four months of the
year -- tumble.
On Monday, the yield on the 10-year Bund was marginally higher
on the day at around 0.37%. Bond prices fall as yield prices rise
and less than two weeks ago the 10-year bund yield hit an all-time
low of 0.05%, spurring predictions of zero or even negative yields
on the benchmark for European credit markets.
"To our minds, the shift that began last week marks a new
crossroad on liquidity and fundamentals and things can no longer
remain the same," Michala Marcussen, chief economist at Société
Générale, said.
Barclays economist Philippe Gudin, however, cautioned that it is
too early to conclude that this is the start of a big and sustained
rise in bond yields in the euro area.
"We are more inclined to interpret it as a healthy positioning
or liquidity-led correction for now," he said.
In currency markets Monday, the euro (EURUSD), which early
Friday had climbed to a two-month high against the U.S. dollar
before being pushed down by a resurgent greenback, was down 0.5%
against the buck to $1.114.
Like European stocks and government bonds, the dollar surged
during the first part of 2015, rising to its highest level against
the euro since 2003, also as a result of the European Central
Bank's EUR60 billion a month bond-buying stimulus pressuring the
euro.
But that trend has also slowed in recent weeks and has in the
last few days has even showed signs of reversing.
Roelof-Jan van den Akker, a technical strategist at ING, said
that like the recent moves in bond and stock markets, this could
mark the start of a "larger consolidation phase" but like in the
other asset classes, not everyone agrees.
Currency strategists at BNP Paribas said that the dollar's
decline in recent days has created a fresh buying opportunity for
some.
"We expect [euro] sellers to return now that positioning is more
balanced," they wrote in a note.
In commodity markets, Brent crude added 0.3% on the day to
$66.56 per barrel, while gold (GCM5) rose 0.6% to $1,182.10 a troy
ounce.
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