Global Shares Pause as Oil Price Continues to Drag -- 2nd Update
June 23 2017 - 7:35AM
Dow Jones News
By Riva Gold and Kenan Machado
Global stocks found little traction Friday, while the British
pound inched up on the first anniversary of the U.K.'s vote to
leave the European Union.
Futures pointed to a 0.1% opening loss for the S&P 500,
following a muted session in Asia. The Stoxx Europe 600 was down
0.5% midday, led lower by declines in autos and chemicals
companies, while London's export-heavy FTSE 100 was off 0.6% as the
pound climbed 0.4% to $1.2728.
Since the June 23 U.K. referendum in 2016, the FTSE 100 index,
which generates roughly two-thirds of its revenue overseas, has
climbed by around 17%, while the pound has fallen roughly 15%. The
pound now looks cheap compared with historical levels, though U.K.
interest-rate expectations have fallen significantly since the
vote, with growth expected to slow this year, keeping the currency
under pressure.
"We don't see a recession on the horizon," said Ed Smith,
strategist at Rathbones. "But the only thing that has really driven
the U.K. economy higher over the last two years has been the
consumer and household spending, and we think that's going to
suffer," Mr. Smith said, noting the sharp fall in the pound has
precipitated a rise in inflation that has outpaced real wage
growth.
More domestically-oriented U.K. shares have underperformed the
wider rally in global equity markets. Data from independent trade
ideas network TIM Group suggests that while in June 2016, the
long-short idea ratio for U.K. and other European shares was nearly
identical, continental Europe has rebounded, while the outlook for
U.K. stocks has remained daunting.
"There was a fear it was opening the door to a more profound
movement and the European project was under significant threat"
shortly after the Brexit vote, said François Savary, chief
investment officer at Geneva's Prime Partners. Since then, French
and Dutch elections have eased political fears around the
continent, and the eurozone economy has continued to improve,
supporting the region's stock markets.
The eurozone's economy slowed slightly in June, but still had
its strongest quarter in more than six years, according to a survey
of activity in the manufacturing and services sectors published
Friday.
Elsewhere in markets, yields on 10-year Treasury notes inched up
to 2.157% from 2.153% Thursday, while the WSJ Dollar Index edged
down 0.1%. Brent crude oil was up 0.1% at $45.27 a barrel but on
track to end the week over 4% lower and off roughly 10% from the
start of the month.
Oil prices have been a drag on stock markets this week. While a
lower oil price should support consumers and oil-importing
countries, it has put pressure on shares of energy companies and
equipment makers. It has also added to investors' doubts about the
outlook for higher inflation, with some analysts expecting to see
traces of the oil price drop showing up in eurozone and Japanese
inflation figures next week.
Investors poured into so called "deflation" assets this week and
took money out of inflation bets, according to analysis of EPFR
Global data by Bank of America Merrill Lynch. Real-estate funds
posted their first inflows in 11 weeks, while utilities funds had
their best week in 51 weeks as both tend to benefit from softened
inflation expectations. Treasury inflation-protected securities,
known as TIPS, suffered outflows. TIPS increase their payout to
holders if inflation measures exceed certain thresholds.
Earlier, Shanghai stocks recovered to trade up 0.3% in a
volatile session after increased regulatory scrutiny over the
borrowings of China's most prolific overseas deal makers sent
markets lower. The Shanghai Composite Index dropped as much as 0.9%
following news that regulators had ordered banks to check their
loans to major Chinese conglomerates.
The choppy moves could heighten apprehensions about volatility
that bogged down Chinese markets for most of last year, just days
after index compiler MSCI decided to include A-shares in its
emerging markets indexes next year. A dominance of retail traders
that move in and out of the world's second-biggest stock market has
meant that trades often happen on rumor and sentiment.
Japan's Nikkei Stock Average rose 0.1% despite a preliminary
survey showing that the nation's manufacturing activity slowed in
June. Air-bag maker Takata surged Friday after steep falls earlier
in the week.
In South Korea, shares climbed 0.4% after the country's
president, Moon Jae-in, said he would lobby China to lift
restrictions it imposed on his country's businesses following the
installation in Korea of a U.S. missile defense system that Beijing
opposes.
Australia's S&P ASX 200 was up 0.2% as gains from mining and
energy stocks were mostly offset by selling in banking stocks,
after one of the country's states proposed a tax on liabilities
that would piggyback on a recently launched federal levy on the
country's biggest lenders.
Shen Hong contributed to this article.
Write to Riva Gold at riva.gold@wsj.com and Kenan Machado at
kenan.machado@wsj.com
(END) Dow Jones Newswires
June 23, 2017 07:20 ET (11:20 GMT)
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