Share rally peters out, euro lifted by PMI boost

By Marc Jones
Reuters
People walk past the New York Stock Exchange as it flies the U.S., French and Eurozone flags in New York
People walk past the New York Stock Exchange as it flies the U.S., French and Eurozone flags in New York, April 14, 2014. REUTERS/Carlo Allegri

By Marc Jones

LONDON (Reuters) - European shares edged down on Wednesday after three days of gains as signs of a slowing Chinese economy and rising worries about Ukraine offset reassuring European economic data.

After racing higher on Tuesday on a wave of takeover activity, European stocks fell 0.3 percent as investors locked in some of the gains and turned their attention to the region's broader economic outlook.

U.S. stock futures also pointed to a subdued start for Wall Street on a heavy day of company earnings as well as U.S. PMI readings.

The PMI readings for Europe showed that France's economy was still lagging, but Germany continued to power the euro zone's recovery. Europe's private sector has started the second quarter on its strongest footing in nearly three years, according to the PMIs, although new orders were again mainly buoyed by price cuts.

"It's pretty encouraging considering what we have seen for years. We are looking at 0.5 percent quarter-on-quarter GDP growth if we continue to see this level," said Chris Williamson, chief economist at Markit, which compiles the PMIs.

"Clearly we should see the pace of growth continue into May and possibly June as well. Companies are beginning to feel this is something sustainable."

The data lifted the euro and the region's government bonds, but after a 3 percent rise in the last two days some stock market investors decided to in their gains.

London's FTSE dipped 0.1 percent, but a 0.4 percent drop by Paris's CAC 40 and 0.3 percent declines in Frankfurt and Milan were the biggest drag on the pan-European FTSEurofirst 300.

Mixed earnings were also a factor. Swedish mobile telecom equipment maker Ericsson fell almost 5 percent after it missed targets. So far this reporting season, 53 percent of companies have beaten or met expectations, compared with 58 percent in Q4 2013.

DELICATE CHINA

U.S. analysts were already sifting through some estimate- topping numbers released before the market opened, from the chemicals giant Dow Chemical and airline Delta. [.N]

In Asia, the main economic data of the day had been less encouraging.

China's stock markets fell again and the yuan tumbled to 16-month low after a survey showed manufacturing activity in the world's second-biggest economy was still slowing in April, and the country's central bank moved again to keep its currency ticking lower.

The HSBC/Markit flash Purchasing Managers Index (PMI) for April rose to 48.3 from March's final reading of 48.0, but was still below the 50 line separating expansion from contraction.

The Australian dollar tumbled to a two-week low after data showed surprisingly low inflation in the first quarter. It slid more than one U.S. cent to $0.9277 and interbank futures <0#YIB:> rallied as the market reassessed the chances the Reserve Bank of Australia will raise interest rates before year-end.

"The fall in the Aussie was quite large considering that interest rate markets weren't pricing a hike until mid-2015 anyway," said Sean Callow, currency strategist at Westpac. "The slide gives the impression that Aussie bears have been waiting for a reason to bash it."

Back in Europe, the euro bounced to $1.3845 before fading slightly, as the upbeat PMI data and more encouraging news on Greece and Spain's finances countered recent talk of interest rate cuts from ECB policymakers.

The pound climbed near a four-year high as the Bank of England flagged how Britain's economy was gaining speed.

UKRAINE STRAINS

The sobering economic news on China added to a host of country-specific issues to drag down most emerging Asian currencies and put emerging-market stocks in the red for a third day.

The Indonesian rupiah fell to its weakest in more than seven weeks on rising demand for dollars at month's end. Turkey's lira hovered near three-week lows as traders awaited a rate decision from the country's dovish central bank.

In commodity markets, Brent crude held above $109 a barrel, just off a six-week high of $110.36 reached last week, propped up by the stand-off in Ukraine.

The U.S. threatened Russia with more sanctions on Tuesday and Ukraine's government said on Wednesday it was restarting an "anti-terrorist operation" to eliminate armed pro-Russian separatist groups in the east of the country.

That kept both Ukrainian and Russian assets under pressure. Stocks in Moscow fell 0.6 percent to a one-week low and Russia's central bank shifted its target exchange rate as it continued interventions to steady the rouble.

It also helped steady gold after it had touched its lowest in more than two months on Tuesday, weighed down by this week's gains in Wall Street stocks and as outflows from physical gold funds pointed to weak investment appetite.

(Additional reporting by Jonathan Cable; Editing by Larry King)