Stocks stumble as Bund yields hit new low

Friday 21:15 BST. US and European stocks slid, pushing Bund yields to fresh record lows, while fears that Beijing was cracking down on stock speculation sent Chinese share futures tumbling.

A two-hour worldwide outage on Bloomberg terminals, which began shortly after the open of the European session, added to the nervous mood across dealing rooms, as did concerns about an apparent lack of progress in negotiations between Greece and its creditors.

Traders were also focused on the release of US inflation data, which showed that core figures for March were more robust than expected, strengthening the case for earlier interest rate rises by the Federal Reserve.

"Given recent activity data weakness, which has seemed to all but rule out a June rate hike, this data adds an additional, but unhelpfully contradictory inflation element to the rate hike timing debate," said Rob Carnell, of ING.

"The core inflation rate has edged up to 1.8 per cent year-on-year and it is this, rather than the energy-affected headline that the Fed will be watching," he added.

But Dan Greenhaus at BTIG reasoned that, although the figures showed that "oil/dollar issues" had not managed to depress the core rate of inflation, it did "nothing to really change the larger narrative".

He added: "We still think the Fed hikes in 2015 but we note many clients remain convinced the Fed will not be able, or willing, to hike at all."

Earlier in the session, all eyes had been on China as the Shanghai stock market closed the week with another 2.2 per cent gain, leaving the benchmark at its best level since March 2008.

This took its weekly gains to nearly 7 per cent and pushed its year-to-date advance to almost one-third. Turnover was sharply above the 30-day average as mainland investors speculated on further stock market gains.

But there had been murmurings that the speculative frenzy was worrying Beijing.

After mainland markets closed on Friday, the Securities Association of China and the China Securities Regulatory Commission said, respectively, that they would allow fund managers to lend shares for short selling and ban some margin trading, in effect stopping parts of the shadow financial system funding stock speculation.

In response, the Hang Seng China Enterprises index future tumbled 3.4 per cent and the HSCE's decline coincided with a sharp drop for developed market indices.

The FTSE Eurofirst 300 fell 1.8 per cent as weakness in banks forced Germany's Dax index to slide 2.6 per cent. In New York, the S&P 500 lost 23 points to 2,081 as investors digested results from GE and Honeywell International.

The corporate earnings season had been generally well received after analysts set the bar low by slashing forecasts.

Also helping US stocks of late were a batch of softer-than-expected US economic reports, which have encouraged traders to push back the timing for when the US Federal Reserve might start raising borrowing costs.

That view, in turn, has hurt the buck and bond yields. The dollar index spent much of Friday in positive territory but by the close of US trading had surrendered gains to stand flat at 97.44, having faltered from a 12-year high of 100.39 hit about five weeks ago.

Also in the wake of the inflation data, yields on the more interest rate-sensitive two-year Treasury note rose 3 basis points on the day to 0.51 per cent, though it had been near 0.7 per cent in mid-March.

Meanwhile, yields on 10-year paper, 2.25 per cent at one stage last month, fell 2bp to 1.86 per cent.

German 10-year Bund yields hit a record low of 0.049 per cent in intraday trading, forced down by the European Central Bank's ongoing €60bn-a-month bond-buying stimulus programme, before closing at 0.078 per cent, down a basis point on the session.

Bunds were likely to be receiving "haven" inflows, too, as investors remained wary about the likelihood of Greece defaulting on some debts should Athens not reach agreement with creditors.

Yields on Greece's bond maturing in July 2017 hit 27 per cent, up a further 8bp on the week's big jumps, though the single currency was resilient, rising 0.4 per cent against the dollar to $1.0804.

Outside of mainland China during the Asia session, markets were subdued. Hong Kong's Hang Seng index fell 0.3 per cent, bringing its year-to-date gain to 17 per cent.

Japan's Nikkei 225 lost 1.2 per cent ahead of a raft of earnings next week, while in Australia the benchmark S&P/ASX 200 was also down 1.2 per cent as falling iron ore prices caused weakness in miners.

Most base metals were initially firmer on Friday but pared gains, succumbing to the risk-off mood enveloping traders, as copper prices surrendered a three-week high to stand near flat on the day.

Market nerves were helping gold rise $6 to $1,203 an ounce.

In energy, Brent crude had a choppy session but later fell 0.4 per cent to $63.70 a barrel, having brushed $65 on Thursday, its best level since mid-December on signs that US production may be faltering.

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