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GLOBAL MARKETS-German growth surprise lifts euro as China subdues Asia

Published 2017-11-14, 08:28 a/m
© Reuters.  GLOBAL MARKETS-German growth surprise lifts euro as China subdues Asia
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* Euro hits near 3-week high, stocks rise then fall

* Wall Street set to open slightly lower

* Asia shares-ex Japan dip 0.17 pct, Nikkei tries to bounce

* China industrial output, retail sales miss forecasts

* Dollar gains vs yen aided by rising yields

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

By Marc Jones

LONDON, Nov 14 (Reuters) - Strong German economic growth data drove the euro to a three-week high and its biggest rise in a month on Tuesday, though it dented European stocks again as they shuffled back to a two-month low.

U.S. stock index futures pointed to a mixed opening for Wall Street, with worries about Republican tax plans and the economy's ability to deal with more rises in interest rates preventing sharper gains.

The uplift to German and euro zone sentiment came after disappointing Chinese industrial and retail figures had subdued Asia, with investors also pondering whether a marked flattening in the U.S. yield curve might be a harbinger of a more global slowdown.

There was no sign of that in Germany where a 0.8 percent third-quarter growth reading beat forecasts and showed the economy expanding at annualised rates of more than 3 percent.

The euro jumped over $1.17 versus the dollar EUR=EBS on the figures and reached a one-year top against Sweden's crown EURSEK= after inflation figures there came in weaker than expected. is not the dollar that is weak, it is the euro that is strong," said John Hardy, Saxo Bank's head of FX strategy. "The next couple of days will be important to see where the euro closes for the direction now in euro/dollar."

Combined with signs of a move up again in European bond yields GVD/EUR , this suggested some traders were back to pricing in an end to the European Central Bank's stimulus, he said.

Also keeping traders busy were 13 central bank speakers, including the heads of the U.S., European, British and Japanese central banks.

The four were speaking together at an ECB conference in Frankfurt. They promised to keep openly guiding investors about future policy moves as they slowly withdraw the huge monetary stimulus rolled out during the financial crisis.

The mood in Asia hasn't been nearly so bullish.

China's retail sales rose 10 percent on the year in October, while industrial output grew 6.2 percent. But both were under market forecasts and briefly hit the Australian dollar, which is often used as a liquid proxy for China because of the country's vast exports of raw materials to China.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dipped 0.17 percent after two sessions of declines, while Australia .AXJO fell 0.9 percent.

Japan's Nikkei .N225 managed to recoup 0.4 percent after four sessions of losses, but that was not enough to shift MSCI's 47-country world index out of the red until Europe opened.

Wall Street was set to open lower after being unsettled on Monday by a sharp drop in General Electric (NYSE:GE) shares, though that had been offset by gains in high dividend-paying sectors including consumer staples and utilities. .N

With European shares back in the red for a fifth day in six, MSCI's 47-country "All world" index was also flirting with its fourth down day, which would be its worst run since August.

Elsewhere, sterling dropped after slightly softer than forecast inflation and hit a three-week low. It was at $1.3091 GBP= , also pressured by concerns British Prime Minister Theresa May might be losing her grip on power.

May's blueprint for Britain's departure from the European Union faces a test starting on Tuesday, when lawmakers try to win concessions on legislation to sever ties. dollar drifted back 0.1 percent at 113.48 yen JPY= after bouncing from 113.25 support overnight.

EYING THE YIELD CURVE

A rise in U.S. bond yields has generally made it more attractive to buy dollars with money borrowed in low-rate currencies like the yen and Swiss franc.

Figures on Monday from the Commodity Futures Trading Commission showed the net short position in the Japanese yen to be the largest since January 2014 and in the Swiss franc to the biggest since December 2016. on Treasury two-year notes US2YT=RR hit a fresh nine-year high of 1.6910 percent on Monday, shrinking the spread to 10-year debt to near its smallest since 2007. /US

The trend in part reflects market wagers that the Fed's plans to raise rates in December and two or three times next year will slow down the U.S. economy.

Tom Porcelli, chief U.S. economist at RBC Capital Markets, said history suggested a flatter, and particularly an inverted, yield curve was "compelling as an early warning sign" of recession.

But with the average amount of time it has taken the curve to go from flat to inverted being 18 months and another 18 months to go from inverted to recession, it suggests the expansion still has multiple years in it, said Porcelli.

In commodity markets, gold XAU= inched down to $1,272.50 an ounce. The metal has stayed broadly within $15 an ounce of its 100-day moving average, currently at $1,277 an ounce, for most of the last month.

Oil prices held in a tight range as support from Middle East tensions and record long bets by fund managers balanced rising U.S. production.

U.S. crude CLc1 was off 19 cents at $56.57, while Brent crude futures LCOc1 eased 23 cents to $62.92 a barrel.

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