Oil prices were anchored at a five-year low on Wednesday and European stocks recovered from the previous day’s sell-off after a similar rebound in Chinese shares prompted by hopes that weak inflation will bring more monetary policy easing in China.
Greek stocks and bonds fell again, with short-term yields rising above long-term yields as next week’s presidential election heightened investors’ concerns over the country’s near-term political, financial and economic future.
The biggest mover on global currency markets was the yen, racking up its third consecutive daily rise against the dollar as traders scaled back bets which culminated last week in the Japanese currency hitting a seven-year low.
“Asian markets started with equity weakness but soft Chinese inflation data prompted increased hopes of further People’s Bank of China easing and that in turn calmed equities,’’ said Kit Juckes, strategist at Societe General.
“(We are) watching equities, oil and Greece.’’
European shares
At 0845 GMT Britain's FTSE 100 was up 0.5 per cent at 6,563 points, Germany's DAX gained 1 per cent to 9,892 points and France’s CAC 40 rose 0.8 per cent to 4,297 points.
The broader FTSEuroFirst 300 index of leading European shares was 0.7 per cent higher at 1,372 points.
On Wall Street overnight, major indexes finished lower, though the S&P 500 recovered late in the day to close nearly flat.
Asian markets
In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.3 per cent, but was off lows as Chinese shares closed up 2.9 per cent. On Tuesday, the Shanghai index rose to a 3-1/2-year high before collapsing to lose more than 5 per cent.
Data on Wednesday showed China’s annual consumer inflation fell to a five-year low of 1.4 per cent in November, signalling persistent weakness in the world’s second largest economy.
Japan’s Nikkei stock average tumbled 2.3 per cent as a stronger yen prompted investors to sell exporters’ shares.
The dollar was down a third of one per cent at 119.27 yen, more than two yen off Friday’s peak of 121.83 yen, and the euro was steady at $1.2372.
Risk aversion
The focus for bond investors in Europe was firmly on Greece, where short-term yields shot above long-term yields. This yield curve inversion often indicates a country is about to default or fall into recession.
Three-year Greek bond yields shot up 34 basis points to 8.532 per cent, the highest level since the bonds were issued back in July, and above 10-year yields which rose 11 basis points to 8.17 per cent.
“Risk aversion has once again taken hold of European markets. We remain cautious on (euro zone) periphery markets over the near-term given the heightened degree of political uncertainty,’’ Citi strategists said in a note on Wednesday.
Greek stocks
Greek stocks were down more than 2 per cent in early trading following Tuesday’s 12.7 per cent loss, which was the biggest one-day fall since 1987.
Front month Brent crude oil futures were down 1.5 per cent at $65.85 a barrel, barely 50 cents above Tuesday’s five-year low of $65.29.
Adding to pressure on crude prices, the American Petroleum Institute, an industry group, reported a 4.4 million barrel build in crude stockpiles last week when analysts had predicted a drop.
US Treasury yields
Low oil prices, weak global inflation and the political developments in Greece supported demand for safe-haven US Treasuries. The yield on benchmark 10-year notes stood at 2.218 per cent in Asian trade, down from its US close of 2.220 per cent on Tuesday.
Spot gold rose to a seven-week high earlier in the day of $1,238.20 an ounce.