US and Europe stocks struggle for traction

Monday 17:00 BST. US and European stocks struggled to gain momentum as traders awaited fresh clues about the state of the US economy, after Chinese equities rallied on hopes for more stimuli.

The dollar index was 0.1 per cent stronger at 99.46 by midday in New York - less than 1 per cent shy of 12-year highs - after the currency wrapped up its best week since July on expectations that economic data will pick up after a harsh winter depressed indicators in the first quarter.

On Wall Street, the S&P 500 was 2 points firmer at 2,104 as traders prepared for the first-quarter earnings season to slip into high gear with companies including Intel, Johnson & Johnson and Bank of America revealing their results over the next few days.

Analysts have slashed profit forecasts because of a stronger dollar, an economic soft patch at the start of the year, and a struggling energy sector in the wake of sharply lower oil prices.

After three years of double digit gains, the S&P 500 has edged up just 2.4 per cent so far this year, as the prospect of slower earnings growth and imminent Federal Reserve tightening has restrained the rally.

Upcoming US economic data, notably the retail sales figures on Tuesday, will also preoccupy investors in future, analysts said.

"The Fed's focus on data dependence will make markets more sensitive to any improvement in the data tone, potentially leading to an outsized reaction," said Gennadiy Goldberg, rate strategist at TD.

"The key question will be to what extent the weather exacerbated economic slowing in early 2015."

In Europe and Japan, the largesse of central banks has underpinned a bullish run for stocks, as the monetary guardians buy up bonds to suppress yields in the hope this will stimulate more risk taking.

This strategy helped the FTSE Eurofirst 300 and the Nikkei 225 hit 15-year highs last week, though both strugged to make further headway on Monday. The Japanese barometer closed flat and the Eurofirst added just 0.1 per cent as weakness in miners counteracted strength in oil groups and banks. Mining stocks pulled the FTSE 100 0.4 per cent lower in London.

Japanese and German 10-year bond yields were 0.34 per cent and a record low of 0.15 per cent respectively, while equivalent maturity US paper was 1.94 per cent, easing 1 basis point on the day.

The yield differentials supported the dollar, leaving the yen above Y120 per dollar and the euro flat at $1.0588, the latter affected by lingering worries over whether Greece can secure a crucial tranche of financial aid.

The dollar was up 1.3 per cent and 0.3 per cent against its Australian and Canadian namesakes as the so-called commodity currencies were rattled by more signs of economic slowdown in China.

Chinese exports in US dollars terms fell 15 per cent in March from a year ago, versus expectations for a 9 per cent gain according to a Bloomberg survey. Imports fell 12.7 per cent, worse than forecasts for a 10 per cent fall. That resulted in a monthly trade balance of $3.1bn, far from the $40bn surplus expected by economists.

"The fall in [Chinese] exports in March underscores our concerns about the state of global demand," said Louis Kuijs, economist at RBS.

Economists at ANZ called the data "poor" and forecast that first-quarter gross domestic product figures, due on Wednesday, will show the economy is growing at a slower pace than the "about 7 per cent" target set by Beijing.

But investors in China continued to adopt the "bad news is good news" mantra as they reasoned that any signs of weak growth will only encourage Beijing to adopt more monetary and fiscal stimuli - thus boosting liquidity and financial market speculation.

The Shanghai Composite, already up a quarter this year, added another 2.2 per cent and the Hang Seng in Hong Kong climbed 2.7 per cent to a seven-year high.

The Hang Seng jumped 7.9 per cent last week, driven by an influx of Chinese cash via the Stock Connect link that allows mainland investors unprecedented access to shares in the city. But the move has left the gauge's 14-day relative strength index, a momentum measure, at 89.4, deep into "overbought" territory.

Neither the disappointing economic news out of China, nor the firmer dollar, hurt industrial commodities as would usually be the case. Instead, copper was up 0.4 per cent at $6,047 a tonne in a generally positive base metals sector, while Brent crude added 0.4 per cent to $58.11 a barrel.

Reporting by Anna Nicolaou in New York, Patrick McGee in Hong Kong and Jamie Chisholm in London

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