World stocks stuck in worst run of the year ahead of ECB meeting

London — World stocks were stuck in their worst run of the year and bonds were on the rise on Thursday, as investors waited for confirmation that the European Central Bank (ECB) will start shoveling cheap cash at the eurozone again.

The ECB is holding its second meeting of the year, with the euro almost motionless and stocks suffering from the same growth nerves that will see the central bank chop its in-house forecasts later. 

European shares retreated further from five-month highs as MSCI’s 47-country world share index also dropped for a fourth straight session to set its longest losing streak since December’s rout. Italy’s government bonds rallied to a seven-month high while its banks, which used the biggest share of the previous round of cheap central bank loans, rose 0.1% but remained below the highs hit in the previous session.

A return to what was once its flagship crisis-fighting tool would be a wrenching change of direction for the ECB just months after it wound down its €2.6-trillion quantitative-easing programme,

However, head of investments at UK fund manager Hermes, Eoin Murray, said he wondered how much impact such measures, or even more US Fed stimulus, would have, considering the potency has tended to wane with every new round in recent years. “I just don’t think it will have the power to get the economy to the point of take-off,” Murray said.

Europe’s subdued mood came after Asia and Wall Street had also both stumbled overnight. MSCI’s broadest index of Asia-Pacific shares outside Japan edged 0.3% lower on Thursday, yet hovering not far from its five-month high marked last week, and was up 10% year-to-date.

Japan’s Nikkei average fell 0.7%, while Hong Kong’s Hang Seng shed 0.7% and Chinese blue-chips snapped a four-day winning streak as the boost from new stimulus plans there ran into the sand.

Wall Street’s main indices had fallen for a third straight session, with the S&P 500 posting its biggest one-day decline in a month, as investors sought reasons to buy after a near 20% rally since the start the year.

“For some time, markets had been pricing in good news, namely that the talks between the US and China will likely go well,” said Tatsushi Maeno, senior strategist at Okasan Asset Management. “Now markets are having a pause.”

Adding to concerns about the talks was data that showed the US goods trade deficit surged to a record high in 2018 as strong domestic demand pulled in imports, despite the Trump administration’s “America First” policies aimed at shrinking the gap.

Other US data out on Wednesday suggested some slowing in the labour market, though the pace of job gains remains more than enough to drive the unemployment rate down.

The ADP national employment report showed private payrolls increased by 183,000 in February after surging 300,000 in January. Economists polled by Reuters had forecast private payrolls advancing 189,000 in February.

The government’s more comprehensive non-farm payrolls employment report for February is scheduled for release on Friday.

Time to TLRTO?

In the currency market, the euro traded at $1.1304, hovering near a two-week low ahead of the ECB and its expected news on its cheap, long-term loans for banks, known more formally as targeted long-term refinancing operations (TLTROs).

The dollar was little changed at ¥111.74, moving away from Tuesday’s two-and-a-half-month peak of ¥112.135, while the dollar index, which measures the greenback against a basket of six of its peers, barely moved at 96.887.

The Canadian and Australian dollars sank to two-month lows on Wednesday as traders scaled back holdings on expectations that policy makers would leave interest rates alone in the foreseeable future or even lower them to counter their softening economies.

Adding to the Aussie’s woes on Thursday was data showing local retailers suffered another bleak month in January, in a sign that overall economic momentum was slowing. The Aussie dollar last changed hands at $0.7042, up 0.1% on the day.

Brexit uncertainty kept the pound below an eight-month high hit last week as investors waited for some clarity to emerge out of negotiations between Britain and the EU. Diplomats said talks in Brussels on Tuesday led by British Prime Minister Theresa May’s chief lawyer Geoffrey Cox, failed to find common ground, with three weeks to go before Britain’s scheduled departure on March 29.

“Markets are getting conflicting signals from law makers in Britain and the negative news flow from Brussels on the negotiation process, and that is keeping the pound in a tight range,” said Nikolay Markov, a senior economist at Pictet Asset Management.

Among commodities, oil edged up amid ongoing oil cartel Opec-led supply cuts and US sanctions against exporters Venezuela and Iran, although prices were prevented from rising further by record US crude output and rising commercial fuel inventories.

US crude futures rose 0.1% to $56.29 a barrel, moving closer to its three-and-a-half-month high of $57.88 touched on Friday, while international benchmark Brent futures gained 0.3% to $66.20 a barrel.

Reuters