Global market volatility falls to two-month low; Pound declines

BLOOMBERG

Volatility across global financial markets is at a two-month low as signs central banks will keep borrowing costs lower for longer to settle investor nerves that frayed at the start of the year.
European shares slipped on Monday after a measure of global stocks posted the strongest close since Jan. 1 last week following five weeks of gains. The pound fell as tensions within the ruling Conservative Party deepened. The Shanghai Composite Index topped 3,000 for the first time in two months amid plans to loosen margin-lending curbs, South Africa’s rand weakened on political turmoil and gains in Indian bonds sent yields to the lowest since 2013 on a government decision to cut rates on small savings plans.
Markets have calmed after a volatile first two months of 2016, which saw U.S. equities post the worst opening period on record. While policy easing by the European Central Bank and Bank of Japan and a forecast for a shallower trajectory of U.S. interest rate increases helped settle price swings, investor confidence remains fragile.
“We have seen a pretty strong recovery after the selloff in beginning or mid of February and the market is losing steam,” said Matthias Jasper, head of equities at WGZ Bank AG in Dusseldorf.
The Bank of America Merrill Lynch Market Risk Index, a gauge tracking volatility expectations for equities, bonds, currencies and commodities, fell to minus 0.24 on Friday, the least since Jan. 6. The Stoxx Europe 600 Index declined 0.6 percent at 8:41 a.m. New York time Monday. Futures on the Standard & Poor’s 500 Index fell 0.1 percent.

Equities
Glencore Plc and Antofagasta Plc helped pull resource-related companies to the biggest drop among European equities, while Total SA dragged oil stocks lower.
Swedbank AB lost 2 percent after naming a new chief financial officer. Telecom Italia SpA climbed 3.4 percent after saying that Chief Executive Officer Marco Patuano is discussing the terms of his resignation. Gas Natural SDG SA added 1.3 percent after changing its dividend proposal and increasing its payout ratio.
Chemicals companies were the biggest gainers of the 19 industry groups on the Stoxx 600 as potential merger-and-acquisition activity helped the sector balance out losses in energy producers and miners. BASF SE and Bayer AG advanced as people familiar with the matter said that Monsanto Co. has explored possible deals with the two German companies.

Commodities
The Bloomberg Commodity Index, which measures returns on raw materials, dropped 0.2 percent as gold and U.S. natural gas prices declined.
Gold fell for a third day as the dollar stabilized. Bullion for immediate delivery declined 1 percent to $1,243.10 an ounce, bringing the three-day decline to 1.5 percent.
Copper for delivery in three months rose 0.3 percent to $5,055 a metric ton on the London Metal Exchange. China’s imports of the metal grew by more than 50 percent compared with the same month a year ago to 328,604 metric tons, the General Administration of Customs said in e-mailed statement. Brent crude added 0.3 percent to $41.34 a barrel. Oil markets have recouped their losses this year after slumping to a 12-year low last month on speculation stronger demand and falling U.S. output will ease a surplus. While speculators became the most bullish on U.S. oil last week since June, the nation’s stockpiles are the highest in more than 80 years and still expanding.
Currencies
The South African rand slipped 0.6 percent as the ruling African National Congress vowed to investigate allegations that President Jacob Zuma’s friends are influencing his administration’s policy, even as it said it retained confidence in his ability to lead.
The pound fell from a one-month high versus the dollar, sliding 0.6 percent to $1.4393 after Pensions Secretary Iain Duncan Smith resigned from the cabinet just three months before a referendum on Britain’s European Union membership.
The yuan weakened as the People’s Bank of China cut the fixing by 0.3 percent, the most in three months.

Emerging Markets
The MSCI Emerging Markets Index was little changed after entering a bull market Friday. Shares in Poland dropped from the highest close since November. Gulf stocks declined, with benchmarks in Abu Dhabi and Dubai losing at least 0.2 percent.
The Shanghai Composite gauge advanced 2.2 percent and the Hang Seng China Enterprises Index of mainland shares listed in Hong Kong increased 0.5 percent.
China Securities Finance Corp., the state-backed agency that provides funding to brokerages for margin trading, said late Friday it will restart offering loans to securities firms for periods ranging from 7 days to 182 days. A surge in margin loans fueled the stock boom in the first half of last year, and exacerbated the slump that followed.

Bonds
German 10-year government bond yield stayed at 0.21 percent after ECB Governing Council member Francois Villeroy de Galhau told a conference in Paris that “the euro area is faced with deflationary pressures.”
U.S. Treasuries slipped, pushing the 10-year yield two basis points higher to 1.89 percent.
Indian bonds advanced, sending the 10-year yield down two basis points to 7.5 percent, headed for lowest close since July 2013. The government’s decision to cut rates on small savings plans has boosted speculation the central bank will further ease monetary policy at its next meeting on April 5.
The latest series of benchmarks measuring the cost of insuring corporate debt against default started trading today. The Markit iTraxx Crossover Index linked to 75 companies with mostly junk ratings cost 302 basis points, compared with 309 basis points for the previous series at the close of trading on Friday, according to data compiled by Bloomberg.