Global stock rally stalls as German data casts cloud over growth
Global stocks held just off three-week highs on Thursday after unexpectedly weak trade and machinery orders data from Germany and Japan hinted that recovery momentum is stalling in more of the world's biggest economies.
An oil price bounce, a weaker dollar and Chinese equity gains provided some support, but with the U.S. Federal Reserve due to release minutes of its last meeting and worries over Germany, investors were wary of extending world shares' six-day rally.
Stock futures indicated a weaker opening on Wall Street, falling around 0.4 percent.
"Risk-on week continues, but it's not a one-way street," Societe Generale analysts told clients.
While some beaten-down assets in emerging markets and commodities could keep rallying, "the weakness in the global economy and deleveraging process in emerging markets will continue to weigh on risky markets," they added.
MSCI's all-country equity index was flat after rebounding 7 percent since last Friday when weak U.S. jobs data pushed back expectations for the first Fed rate rise in almost a decade into next year.
Doubts about developed world growth reared their head again after Japan's machinery orders fell in August by 5.7 percent, bucking expectations of a rise and undermining hopes of an inflation pick-up.
The data took Japanese stocks around 1 percent lower while the yen was dampened by expectations the Bank of Japan might have to print yet more money.
In Europe's growth engine, Germany, exports plunged 5.2 percent in August for their biggest monthly decline since the height of the global financial crisis.
A warning by Deutsche Bank of a record pre-tax profit in the third quarter pushed its shares 2.5 percent lower at one point and the German share index, already battered by the Volkswagen emissions scandal, opened half a percent lower before recovering.
The pan-European FTSEEurofirst 300 index also wobbled then clawed back from initial 0.4 percent falls.
John Plassard, senior equity sales trader at Mirabaud Securities, said of Deutsche Bank's warning: "We could see more and more big writedowns hit a sector which thought it was starting to come to terms with the big restructurings in the wake of the 2008 crisis."
Emerging assets retreated, with MSCI's equity index down 0.6 percent and most currencies easing against the dollar. Chinese shares, reopening after a week's holiday, were the exception with 3 percent gains, playing catch-up with the recent global rally .
On Wall Street too, futures for the S&P 500, Nasdaq and Dow indexes pointed to losses.
All the data chimes with warnings from international organisations such as the IMF that have pointed to stalling recovery momentum in Germany, Britain and United States along with recession in big emerging markets Russia and Brazil.
Investors will have an opportunity to gauge the thinking of the U.S. central bank when the minutes of the Fed's September meeting, at which it opted not to hike rates, are released later in the day.
Fading chances of a near-term lift-off by the Fed and expectations of a rate hike only in 2016 have taken a toll on the dollar, which fell against the euro and a broad basket of currencies
The greenback dipped 0.2 percent against the yen, while the euro rose 0.5 percent and the Australian and Canadian dollars firmed with the turn in Fed expectations supporting commodity prices.
The European Central Bank too will release minutes: investors are keen to see if it will hint at extending its trillion euro bond-buying programme.
German 10-year Bund yields fell 4 basis points to 0.56 percent, holding near five-month lows hit last week.
HSBC predicted 10-year U.S. and German bond yields would fall to within sight of record lows next year.
"A conventional (Fed and ECB) tightening cycle has become increasingly unlikely," said HSBC said. "Our lower yield views are part of an international story, one that sees the ECB stuck in dovish mode well beyond the end-2016 forecast horizon."
Meanwhile, European Central Bank policymakers were warned in September of risks to the euro zone economy from a slowdown in emerging markets led by China, seen until recently as the world's main economic engine.
The concerns were expressed at the ECB's Sept. 2-3 policy meeting, minutes of which were published on Thursday, days after the International Monetary Fund cut its global growth forecasts, pointing partly to China.
ECB chief economist Peter Praet told the meeting in Frankfurt that "challenges facing emerging market economies were clouding the global outlook and were unlikely to recede quickly," the minutes said.
"Although it was still premature to conclude whether these developments could have a lasting impact on euro area output and ... inflation, downside risks had intensified."