China reality check halts stock rally as Japan leads bond gains

BLOOMBERG

Global stocks dropped as a slump in Chinese exports dragged metals lower and brought equities’ five-day winning streak to a halt. Japanese government bonds surged in a haven-asset rally that also lifted the yen, gold and Treasuries.
The Stoxx Europe 600 Index extended its decline from a five-week high as investors sold equities that had led the recent rebound, while Brent crude slid after closing on Monday above $40 a barrel for the first time this year. Industrial metals sank and iron ore fell as Goldman Sachs Group Inc. predicted gains in commodities would falter.
A jump in Japanese bonds that sent yields to record lows helped boost Treasuries and European debt. The yen strengthened against all of its 31 major peers and gold climbed to a 13-month high.
Sustained demand for precious metals and sovereign debt highlights a lack of confidence in the rebounds in global stocks and commodities that took hold over the last three weeks, a period in which $4.6 trillion was added to the value of equities worldwide.
Now data are starting to reinforce those misgivings: Japan announced a drop in fourth-quarter gross domestic product and China reported the biggest tumble in exports in almost six years. That may raise tension before a decision on further stimulus by the European Central Bank on March 10.
“The Chinese trade data is a reminder that the path for the business cycle ahead is pretty rocky and bumpy,” said Ralf Zimmermann, a strategist at Bankhaus Lampe in Dusseldorf. “After such a rebound some profit taking is natural, especially with no real strong re-acceleration.”
The MSCI All-Country World Index dropped 0.2 percent at 7:58 a.m. in New York. The yen strengthened 0.4 percent to 113.1 per dollar and gold advanced 0.6 percent to $1,274.81 an ounce.

Stocks
The Stoxx Europe 600 Index retreated 0.4 percent, led by mining-related companies. Gains in those sectors had helped the Stoxx 600 rebound as much as 13 percent since a Feb. 11 low.
Casino Guichard-Perrachon SA lost 1.9 percent after short seller Muddy Waters said its investigators uncovered evidence indicating the grocer has stretched payments to its suppliers in France beyond what’s typical in that country. The company has rejected earlier claims by Muddy Waters, saying it has a solid financial structure.
Dialog Semiconductor Plc fell 1.6 percent after the chipmaker’s first-quarter revenue forecasts missed estimates. Burberry Group Plc rose 6.6 percent after the Financial Times reported the luxury-goods company has sought help in defending itself against a potential takeover.
Standard & Poor’s 500 Index contracts slipped 0.3 percent. Equities eked out gains Monday as an oil-spurred surge in commodity producers offset declines in technology and consumer shares. The MSCI Asia Pacific Index fell 0.7 percent as all 10 industry groups retreated. Japan’s Topix dropped 1 percent.
Japan’s economy contracted an annualized 1.1 percent last quarter, and while the drop was less than analysts predicted it underscored growing concern over Prime Minister Shinzo Abe’s reflation program. China’s exports tumbled 25.4 percent from a year earlier in dollar terms in February as imports fell for the 16th month in a row.
“The exports data are very, very poor,” said Castor Pang, head of research with Core-Pacific Yamaichi Hong Kong. “The huge decline doesn’t auger well for the stock market.”

Emerging Markets
The MSCI Emerging Markets Index slipped for the first time in eight days.
Chinese exports contracted the most in February since 2009, the data showed, days after the National People’s Congress set a lower growth target for the world’s second-largest economy. China’s benchmark Shanghai Composite Index recovered losses in the final minutes of trading as speculation of buying by state-backed funds helped offset concern about plunging exports.
A gauge of 20 developing-nation currencies fell 0.2 percent, its first decline in seven days.

Currencies
China’s yuan climbed 0.17 percent as the central bank raised its daily reference rate for the currency following Monday data that showed a slide in the nation’s foreign-exchange reserves moderated in February.
The currencies of raw-material producing nations slumped, led by South Africa’s rand dropping 0.8 percent. Norway’s krone slid 0.6 percent, while New Zealand’s dollar fell 0.4 percent.
The yen climbed for a second day. Bank of Japan Governor Haruhiko Kuroda told parliament on Monday he doesn’t think additional stimulus is needed at the present time.
“The yen is gaining partly because Kuroda is denying imminent further easing,” said Shinichiro Kadota, a foreign-exchange strategist at Barclays Plc in Tokyo. “That’s effectively telling speculative players to go ahead and buy the yen.”

Bonds
Japan’s 10-year government bond yield slid to an all-time low of minus 0.1 percent, according to Japan Bond Trading Co., after an auction of 30-year debt drew the strongest demand in almost two years despite a record-low coupon. The yield on 30-year securities tumbled more than 20 basis points, sliding below 0.5 percent for the first time.
The yield on 10-year U.S. Treasuries fell six basis points to 1.85 percent, retreating from a one-month high, and that on similar-maturity German bunds slid five basis points to 0.17 percent and
the five-year yield sank to minus
0.39 percent.
Pacific Investment Management Co. recommends investors move out of government bonds and into corporate credit because the U.S. will avoid a recession. With sovereign notes in Japan and Germany offering negative yields, and equity valuations stretched, it says high-quality company debt, junk bonds and bank loans offer a better risk-adjusted alternative.

Commodities
Iron-ore futures on the Singapore Exchange fell 8.8 percent, after a record 19 percent jump on Monday. Citigroup Inc. said it’s still bearish as supply and demand fundamentals remain weak, while Axiom Capital Management Inc. said the price surge was probably just a “blip.”
Copper fell 0.5 percent in London, trimming this month’s advance to 6 percent. Nickel slid 2.5 percent, retreating from its highest close since November. Goldman Sachs reiterated its view that the drivers for last year’s slump in industrial metals prices remain intact, predicting drops of as much as 20 percent for copper and aluminum over the next 12 months.
Gold last week entered a bull market — commonly defined as a 20 percent advance from the most recent low — and platinum and palladium followed suit on Monday. Platinum rose 0.5 percent on Tuesday, while palladium dropped 1.1 percent.
Brent crude slipped 0.4 percent in London to 41.01 a barrel, after surging 5.5 percent on Monday. It has advanced more than 40 percent since slumping to a 12-year low in January amid speculation a proposal by major producers to freeze production will trim a global glut. Data on Wednesday is forecast to show U.S. stockpiles increased last week to the highest level since 1930.