Europe: Stocks drop with US index futures, dollar as oil slides

[HONG KONG] European stocks dropped with US index futures and the dollar, while oil extended losses. Chinese stocks in Hong Kong rallied a third day and metals gained after factory gauges in the world's second-largest economy topped estimates.

The Stoxx Europe 600 Index fell 0.1 per cent by 8:22 am in London, with most industries retreating as Standard & Poor's 500 Index futures tumbled 0.6 per cent after the US gauge capped its longest run of quarterly gains since 1998. The Hang Seng China Enterprises Index advanced 1.4 per cent, taking its three- day increase beyond 5 per cent. The Bloomberg Dollar Spot Index weakened as the euro climbed 0.2 per cent. Oil in New York fell as negotiators near an accord that could allow more Iranian crude into global markets.

The value of global stocks climbed to a record last quarter as the Federal Reserve cut its outlook for interest rates and central banks from Europe to Asia boosted stimulus. China's official factory gauge unexpectedly signaled expansion in March, while a private index showed a slower-than-estimated contraction. Negotiators have reached consensus on the main points of a nuclear accord with Iran, the foreign ministers of Russia and Iran said early Wednesday.

"This is going to be a tougher quarter and you can expect higher volatility," Nader Naeimi, who helps manage about US$118 billion as the Sydney-based head of dynamic asset allocation at AMP Capital Investors, said. "We have raised cash levels and now have less in equities than in the past year. You need to have some powder dry to buy into the market if we have a correction."

Stoxx 600 Seventeen of the 19 industry groups on the Stoxx 600 retreated today, led by technology shares. Dassault Systemes SA dropped 2.4 per cent as Exane BNP Paribas cut the software and 3D-modelling firm's shares to underperform. The Stoxx 600 capped its biggest quarterly advance since the third quarter of 2009 on Tuesday.

US index futures signaled the S&P 500 may extend its 2.3 per cent retreat from a record on March 2. The benchmark index for US equities clung to a 0.4 per cent gain across the first three months of 2015 to maintain its quarterly winning streak. The US is among the worst performers across 24 developed markets this year.

E-mini S&P 500 futures opened 0.1 per cent lower Wednesday at 2,058 and meandered within a four-point range for the first two hours of trading. After 9 am Tokyo time, the contracts began tracking steadily lower, before losses snowballed at 9:55 am with a 11.75-point slump in two minutes. More than 13,500 contracts changed hands in that span.

Similar contracts on the Nasdaq 100 Index dropped 0.6 per cent Wednesday and those on the Dow Jones Industrial Average retreated 0.5 per cent.

Three rounds of Fed stimulus have helped the S&P 500 more than triple from a low in March 2009. The index is trading near its highest valuation in more than five years, according to data compiled by Bloomberg.

"I can't point my fingers to anything that would have triggered this kind of fall in S&P futures," AMP Capital's Naeimi. "I guess that's how big corrections often start. The fundamental reason will emerge later."

Hong Kong's Hang Seng Index rose 0.6 per cent, while 34 of the 40 stocks in the so-called H-share index advanced. The Shanghai Composite Index climbed 1.7 per cent, extending its 83 per cent rally through the last three quarters amid speculation that China will continue to expand stimulus.

China's official manufacturing purchasing managers index rose to 50.1 versus the 49.7 reading projected by economists surveyed by Bloomberg. Readings above 50 denote expansion. New export orders fell to lowest level in more than a year, the data show.

A private gauge from HSBC Holdings Plc and Markit Economics came in at 49.6. While that was higher than a preliminary reading of 49.2, it was below the February final score of 50.7.

"After a string of disappointing data, the improvement in the official PMI is welcome news and suggests that the recent rate cuts and pick-up in bank lending growth may be helping to support large firms," said Julian Evans-Pritchard, a Singapore- based China economist at Capital Economics Ltd. "Growth is still likely to have slowed sharply last quarter and we expect more policy support measures."

Japan's Topix index slid 0.9 per cent after the quarterly Tankan Index showed large companies plan to cut capital expenditure for the first time in two years. The yen rose 0.2 per cent to 119.93 per dollar, paring gains after an aide to Prime Minister Shinzo Abe said the Bank of Japan must unleash further stimulus.

Bloomberg's gauge tracking the dollar against 10 of its most-traded peers capped a ninth straight monthly advance in March, the longest run in data going back to January 2005. The euro climbed to US$1.0749 on Wednesday, while every other Group of 10 currency, with the exception of New Zealand's dollar and Norway's krone, was also stronger against the greenback.

South Korea's won strengthened 0.7 per cent to 1,102.2 per dollar and the Kospi index retreated 0.6 per cent after the nation's trade surplus widened to a record.

The Malaysian and Indonesian currencies were at least 0.4 per cent higher.

West Texas Intermediate crude fell 0.7 per cent to US$47.25 a barrel, after three days of declines. WTI sank 11 per cent last quarter in a third run of losses, the longest slump since 2003, amid speculation the global surplus that saw prices slashed by almost 50 per cent in 2014 will persist.

Brent, the benchmark contract for more than half of global oil, fell 0.7 per cent to US$54.74 a barrel in London.

Metals Increase The Bloomberg Commodity Index increased 0.1 per cent as metals rallied after the China factory data. Gold added 0.2 per cent to US$1,185.27 an ounce, the first gain since March 26.

Nickel for three-month delivery on the London Metal Exchange rose as much as 1.4 per cent to US$12,565 a metric ton before trading at US$12,495 a ton. Prices fell 3.8 per cent to US$12,395 a ton on Tuesday, the lowest since May 2009.

Buying and selling of the LME's benchmark nickel contract jumped more than fivefold this year's daily average during the trading hours that overlap with the Shanghai Futures Exchange since the Chinese bourse started its own contract.

BLOOMBERG