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GLOBAL MARKETS-Wall Street set for fall as Europe, emerging mkts FX tumble

Published 2017-07-06, 09:06 a/m
Updated 2017-07-06, 09:10 a/m
© Reuters.  GLOBAL MARKETS-Wall Street set for fall as Europe, emerging mkts FX tumble

* Graphic: World FX rates in 2017 http://tmsnrt.rs/2egbfVh

* Crude rises following Wednesday's slump on OPEC export rise

* European stocks tumble to lowest in over two months

* Top EM currencies remain in the firing line

* Fed minutes show lack of consensus on future policy changes

* ECB minutes show policymakers discussed removing easing bias

* Dollar dips, U.S. Treasury yields climb in sell-off

* German Bund yields hit highest in 1-1/2 years

By Marc Jones

LONDON, July 6 (Reuters) - Oil recovered from a heavy fall on Thursday but European stocks and the biggest emerging market currencies tumbled for a second day, as investors retreated in the face of rising global borrowing costs.

German Bund yields hit their highest in 1-1/2 years EUR/GVD as a sell-off in European stocks .EU and bonds snowballed. Wall Street was set to fall for the first time in four days, while the dollar .DXY started to backslide again.

With the Federal Reserve sending mixed signals on its balance sheet plans, investors were focusing on U.S. jobs data due on Friday. A summit of G20 nations has also taken on greater significance following this week's test of a long-range missile by North Korea. manager Jan Dehn of Ashmore identified a trio of concerns spooking investors, especially in emerging markets.

"One is the Middle East and the Qatar-Saudi situation and even the oil market doesn't know how to handle that one," he said. "The second is North Korea, which is classic geopolitical risk, and finally, and probably most importantly, there has been the recent hawkish tilt from the major central banks and it seems to be coordinated."

Dehn also cited some profit-taking in emerging market assets after a stellar first half to the year.

South Africa's rand ZAR= , Turkey's lira TRY= and the Russian rouble RUB= all fell sharply on Thursday for a second consecutive day. EMRG/FRX

The rand fell 0.7 percent, extending Wednesday's 1.6 percent drop driven by ANC proposals to nationalise the respected central bank and expropriate land without compensation, and by the ruling party's failure to agree much-needed reforms.

Bond yields, which drive global borrowing costs, pushed higher again ahead of U.S. trading with benchmark U.S. Treasury yields testing 2.4 percent as they rose for a sixth day in the last seven. US10YT=RR .

Bunds led European yields higher too, with comments from the ECB's chief economist stressing ahead of the bank's latest meeting minutes that it needed to keep a "steady-hand policy" doing little to change the sentiment.

The minutes themselves then showed policymakers had last month discussed dropping their pledge to expand or extend the bank's bond-purchase programme if necessary. confidence in the inflation outlook improved further, the case of retaining this (easing) bias could be reviewed," the ECB said in the accounts of its June meeting.

DESTABILISING ACTIVITIES

Commodity markets continued to swing wildly.

Brent oil was at $48.54 a barrel LCOc1 ahead of U.S. trading as it recovered 1.5 percent of a 4 percent drop seen on Wednesday when rising OPEC exports raised fresh questions about the group's plans to cut global supply. O/R

Gold XAU= was down near an eight-week low at $1,222 GOL/ , though industrial metal aluminum hit its highest in more than five weeks as worries about Chinese supply were fanned by market talk that local smelters would be forced to shut capacity. MET/L

Ahead of the formal start of the G20 meeting in Germany there was plenty of talk from the major players.

Host Angela Merkel said the summit should strengthen international cooperation but a top Chinese official warned the United States that rising tensions over North Korea should not be used as an excuse to impose sanctions on his country. a speech in Poland, U.S. President Donald Trump meanwhile urged Russia to "cease its destabilising activities" and urged it to join the wider international community to tackle problems.

U.S. stock futures ESc1 pointed to a 0.3-0.4 percent dip for Wall Street's S&P 500 and Dow Jones indexes while the dollar was stalled at 113.32 Japanese yen JPY= and $1.1383 per euro EUR= .

Traders were wary though of making sudden moves, with a flurry of U.S. data looming or already arrived, including ADP employment, ISM non-manufacturing PMI and the initial jobless claims report, all of which are appetizers ahead of Friday's Payrolls numbers. ECONUS

European stocks were pushed to their lowest in over two months by the day's sell-off .EU while the pound slipped back below 88 pence to the euro EURGBP=D3 GBP/ as Brexit tensions re-emerged in Brussels. European Union's chief negotiator Michel Barnier warned British ministers and businesses who are calling for "frictionless trade" post-Brexit that is "not possible".

Barnier also said he was ready to handle a failure of talks and "no deal" but that that would be damaging, especially to Britain, and he saw "no reasonable justification" for it.

Overnight in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS ended down 0.1 percent. Japan's Nikkei .N225 slipped 0.5 percent as a stronger yen depressed the outlook for export earnings.

Trading in Asia has been buffeted this week by tensions on the Korean peninsula after North Korea fired a missile, which U.S. officials concluded was an intercontinental ballistic missile, into Japanese waters.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets

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