European stocks slide as traders returned from a 4-day Easter holidays, Asian equities likewise drop pressured by the ongoing rout in iron ore, while U.S. stock-index futures point to a lower open. British markets were roiled after U.K. Prime Minister Theresa May said she would seek an early election on June 8, in a move aimed at strengthening her hand going into Brexit talks; the FTSE 100 dropped 1.3%, on the news, hitting the lowest since Feb. 24 while 10Y Gilts dropped below 1% for the first time since October.
The British pound first tumbled then surged on the news. Tracking today’s surprise announcement by the UK PM, sterling swung from gain to loss and back again versus the dollar before May set the vote for June 8. U.K. stocks fell by the most since January. The export-heavy FTSE 100 hits a seven-week low. The broader, more domestically focused FTSE 250, however, doesn’t see this as much of a negative:
Meanwhile, the Stoxx Europe 600 Index dropped to the lowest level in about three weeks as mining shares plunged, and government bonds in the region mostly rose as the build up to the French election intensified. Iron ore reeled as Citigroup Inc. said it’s bearish on the raw material’s outlook.
The catalyst for the overnight selloff came from Asia, where the iron ore rout continued, and after the latest 5% drop, the commodity has plunged 32% from high point in Feb this year.
#CHINA‘S #IRONORE SELLOFF DEEPENS, TUMBLING 5% NOW pic.twitter.com/lFNyTTwjtY
— YUAN TALKS (@YuanTalks) April 18, 2017
The drop pressured Australian stocks (ASX 200 -1.0%) which declined to a 2-week low, as recent losses in iron ore and gold weighed on mining names. MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.7 percent, while Tokyo’s Nikkei closed up 0.4 percent on earlier yen weakness.
A bounce in U.S. stocks Monday failed to cheer investors in the European session, as the standoff over North Korea’s nuclear weapons program rumbles on and the French presidential vote looms: here two candidates who want to take the country out of Europe’s common currency remain in contention in the most unpredictable race in recent history. As a result, the spread between German and Italian bonds continued to widen.“Expect a lot of noise and probably elevated volatility this week” as the first round of voting approaches, Jim Reid, a strategist at Deutsche Bank AG in London, wrote in a note.
The dollar dipped fractionally against a basket of major currencies. It earlier lifted off five-month lows versus the yen after U.S. Treasury Secretary Steven Mnuchin told the Financial Times a strong dollar was a positive in the long term while agreeing with U.S. President Donald Trump that it hurt exports in the short term.
Investors were also watching trade talks between the United States and Japan, whose deputy premier, Taro Aso, said the two sides agreed to combat unfair trade practices. “There was quite strong thinking in the market that the U.S. would maybe put pressure on Japan in terms of currency manipulation,” said Neil Jones, head of hedge fund FX sales at Mizuho in London.
Investor nervousness ahead of Sunday’s French election made itself felt in currency and debt markets. French 10-year government bond yields initially rose while ultra-safe German equivalents dipped, taking the gap between the two close to six-week highs. But French yields later fell and the spread with Germany narrowed to its tightest since April 13 after an opinion poll put centrist Emmanuel Macron first in the first round of voting, just ahead of far-right, anti-euro candidate Marine Le Pen with a bigger gap to far-left representative Jean-Luc Melenchon.
The cost of hedging against big moves in the euro against both the dollar and the yen over the next month jumped on Monday to their highest levels since Britain’s vote to leave the European Union.
“(Euro government bond) investors are going to be very careful this week and clearly the only thing that’s going to be on their minds is what happens in France,” said Chris Scicluna, head of economic research at Daiwa Capital Markets. Implied volatility in the STOXX 600 index hit its highest since early November 2016.
Oil prices fell after a U.S. government report indicated U.S. shale production was rising. Brent, the international benchmark crude, fell 29 cents a barrel to $55.07. Copper was down 0.6 percent at $$5,655 a tonne. Gold was marginally higher on the day at $1,283 an ounce, having touched a five-month high of $1,295 on Monday.
Economic data include March housing starts, industrial production. Scheduled earnings include J&J, Bank of America, IBM, UnitedHealth, Goldman Sachs.
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