European shares showed signs of recovery yesterday and Wall Street futures pointed to a positive US session, after US President Trump signalled that military strikes in Syria may not be imminent, and a strong US earnings season came into focus.
The risk of clashes between Western powers and Russia in Syria over an alleged chemical attack kept bond yields low, while crude prices fell back, having surged to 2014 highs as a result of political risk in the oil-rich region.
MSCI’s world equity index was down for the second day but European shares managed a 0.4 per cent gain as risky assets regained the upper hand.
Sentiment in European stocks improved ahead of Wall Street’s open with futures up 0.6 per cent.
Investors’ expectations for very strong results from US corporates in the quarterly earnings season kept them from turning overly bearish on stocks despite political risks.
Heightened geopolitical tensions have piled pressure on investors already rattled by a trade spat between the United States and China and a generally more volatile market.
Crude prices fell back after three sessions of strong gains took them to their highest levels since late 2014 on Wednesday.
US crude futures last traded down 0.7 per cent at $66.35 a barrel, having risen 7.4 per cent so far this week. They traded as high as $67.45 on Wednesday.
Brent declined 0.8 per cent to $71.53 a barrel, having touched a high of $73.09 on Wednesday.
European government bond yields remained low as caution dominated ahead of ECB minutes and speeches from several ECB members. Germany’s 10-year Bund yield rose one basis point to 0.512, staying near the one-week low it hit on Wednesday.
“Investors are really torn on bonds right now because they know the economy is strong and inflation is coming up,” said a UBP spokesman.
He started adding to government bonds last month for the first time since 2016, hoping to benefit from bonds’ relatively low volatility.
Safe-haven gold slipped 0.6 per cent from an 11-week high after minutes from the Federal Reserve’s policy meeting on Wednesday raised expectations it could raise rates at a faster pace.
Risk appetite also returned to currency markets
The dollar index rose 0.3 per cent to a session high after Mr Trump’s latest comments, though it was still near a two-week low. The safe-haven yen edged lower to 107.09 against the dollar.
The euro fell back 0.4 per cent to $1.2329 ahead of the ECB meeting.
Russia’s rouble edged up for a second day after heavy selling due to new punitive sanctions by the United States. It traded around 61.69 to the dollar, still down more than seven per cent this week.
The Turkish lira, which has been highly sensitive to developments in neighbouring Syria, recovered slightly to trade at 4.1011 per dollar after hitting a record low of 4.1920 on Wednesday.