GLOBAL MARKETS-Dollar clings onto gains as equities prepare for earnings
* Dollar at 1-week high after strong U.S. jobs data
* U.S. short-term yields near 10-month high
* European shares dip, Wall Street expected to follow
* Earnings in focus, investors see decent profit growth
By Marc Jones
LONDON, July 7 (Reuters) - The dollar and world shares were
losing steam on Monday as the momentum from last week's strong
U.S. jobs data faded and attention began to turn to the
fast-approaching earnings season.
Weak manufacturing data from Germany took the wind out of
European shares and the euro, but for the most part moves were
minor and there was little sign of any nervous reaction in the
region's bond markets.
The dollar was just about clinging onto a fifth straight day
of gains against a basket of other major currencies - its
longest streak of gains since October - but a pause in U.S. bond
yields left it struggling to maintain its altitude.
"Overall the dollar is a bit stronger and that will remain
in place over the next week," said Vasileios Gkionakis, global
head of FX strategy at UniCredit (Milan: UCG.MI - news) in London.
"Rates in the U.S. are going to grind higher, dollar/yen is
going to grind higher and probably in the next week or so
against the euro as well."
Wall Street was expected to start down 0.1-0.2 percent on
reopening after Friday's holiday, according to futures markets
.
After global stocks reached record highs last week,
investors are now looking at whether those share prices will be
justified by quarterly earnings reports and forecasts in the
United States and elsewhere, with aluminium producer Alcoa
kicking off the U.S. earnings season on Tuesday.
German industrial output data soured sentiment in European
share markets as it fell 1.8 percent on the month in May, its
biggest drop in more than two years, confounding expectations of
a steady reading from Europe's manufacturing powerhouse.
Germany's DAX fell 0.2 percent after the industrial
output data.
"It's just more evidence that overall economic growth has
slowed down in the second quarter from the strong first
quarter," Ioan Smith, director at KCG, said.
The data only briefly affected the euro, however, probably
because after four days of falls, most sellers in the market had
been shaken out.
The single currency was quickly back on its feet at $1.3590
versus the dollar. It skimmed a new 22-month low against the
British pound but that was due to bets the Bank of England will
be the first of the world's big central banks to raise interest
rates.
France's CAC 40 share index was down 0.4 percent
after pharmaceuticals heavyweight Sanofi (NasdaqGM: GCVRZ - news) warned
currency effects would dent its earnings. A drop in Vienna's
stock index also weighed on European shares for a second
day, as it tumbled 1.1 percent after falling 3 percent on Friday
on concerns about risks to Austrian banks' business in eastern
Europe.
EARNINGS
Global shares rallied broadly last week, pushing MSCI (NYSE: MSCI - news) 's All
World share index to a record high, as U.S.
employment growth smashed forecasts and unemployment fell to
near a six-year low of 6.1 percent.
Market focus is now shifting to earnings. Analysts polled by
Reuters expect U.S. earnings growth of 6.2 percent for the
second quarter, and a return to double-digits in the third and
fourth quarters of 10.9 percent and 11.9 percent, respectively.
"People said the U.S. earnings would be bad for
January-March but in the end the profits were up. I would expect
decent results (this time)," said Tsuyoshi Shimizu, chief
strategist at Mizuho Asset Management.
Despite the clear improvement in the U.S. jobs market in
recent months, the Federal Reserve is widely expected to keep
interest rates near zero for at least a year. even as it trims
its bond-buying stimulus.
DOLLAR DEMAND
U.S. bond yields, which tend to underpin borrowing costs
globally and jumped after last week's forecast-busting jobs
data, stayed near a 10-month high of 0.5238 percent for two-year
Treasuries as U.S. trading loomed.
The dollar index had also steadied at 80.285 after
hitting its highest level in a week and a half.
In emerging markets, MSCI's emerging market stock
index hit a 13-month high as shares in India hit their third
consecutive record high ahead of this week's budget.
Indonesian markets also rallied ahead of a
presidential election on Wednesday where Jakarta Governor Joko
"Jokowi" Widodo, seen as market friendly, is neck-and-neck in
opinion polls with former special forces chief Prabowo Subianto.
Among commodities, U.S. crude oil futures traded
little changed at $103.88 per barrel, near Friday's low of
$103.67, as Libya geared up to resume exports after the end of a
rebel group's almost year-long blockage of two major ports.
With safe-haven assets out of favour, spot gold
slipped 0.5 percent to $1,314 an ounce, after five consecutive
weekly gains. Silver fell 1 percent.
(Additional reporting by Alistair Smout in Edinburgh; Editing
by Susan Fenton)
