Weak data cools China stocks, other world markets gain as bond jitters fade

BEIJING, China – Chinese stocks sank Wednesday after weak April retail spending but other major global benchmarks rose, overcoming jitters caused by a bond sell-off.

KEEPING SCORE: European markets rebounded from the previous day’s losses. France’s CAC 40 gained 1.2 per cent to 5,036.43 points and Germany’s DAX added 0.7 per cent to 11,553.70. Britain’s FTSE 100 rose 0.6 per cent to 6,977.41. Wall Street also looked set to recover. The future for the Dow Jones industrial average was up 0.4 per cent at 18,095.00. Standard & Poor’s 500 futures rose 0.4 per cent to 2,103.80. On Tuesday, the Dow sank 0.2 per cent after falling nearly six times that far during the day. The S&P lost 0.3 per cent and the Nasdaq composite slid 0.4 per cent.

BOND WOBBLES: A spike in long-term interest rates Tuesday rattled investors who sold U.S. stocks. Traders have been selling government bonds in recent weeks. That accelerated Tuesday, bringing down prices and driving up the benchmark U.S. bond yield to the highest level since late November. In the United States, the yield on the 10-year Treasury note surged as high as 2.36 per cent. Weakness in bond prices pushes up the cost of borrowing, including mortgages and other loans, which can drag on the economy.

ANALYST’S COMMENT: “Like a car smash in slow motion, global bond markets are making the adjustment to a post-QE world,” said Michael McCarthy of CMC Markets in a report referring to the winding down of ultra-easy monetary policy in the U.S. “Bond yields are at three-month highs, and seem set to rise further despite remarks from Fed officials that the pace of tightening may be slow,” he said. “The exception is Greece, where ten-year bonds yields sit in the middle of the three-month range at 10.6 per cent. This risk premium to other bonds reflects market concerns amid reports the IMF is now lining up with Greece to demand investors take a haircut on existing debt.”

ASIA’S DAY: The Shanghai Composite Index gave up 0.6 per cent to 4,375.76 and Hong Kong’s Hang Seng shed 0.6 per cent to 27,249.28. Tokyo’s Nikkei 225 rose 0.7 per cent to 19,764.72, Seoul’s Kospi added 0.8 per cent to 2,114.16 and Sydney’s S&P ASX 200 advanced 0.7 per cent to 5,715.10. India’s Sensex was up 0.7 per cent to 27,071.09 and Taiwan, Singapore and Jakarta also gained.

CHINA COOLING: Chinese factory output and other activity in April were weaker than expected, adding to signs the downturn in the world’s second-largest economy is deepening. Retail sales growth slowed to 10 per cent, dragged down by weaker real estate-related sales of home appliances, furniture and construction materials. Factory output growth accelerated modestly to 5.9 per cent. Investment in factories, real estate and other fixed assets grew by 9.6 per cent. “The real activity data in April fell short of our and consensus forecasts across the board,” said Citigroup economists in a report. “The government may step up unconventional policies to support the economy.”

GREECE: Greece made a 757 million euro ($844 million) debt payment to the International Monetary Fund but owes more in coming weeks. Athens is under pressure from its creditors to liberalize labour markets further and reduce state funding for pensions. The radical left Syriza-led government, elected in January, is seeking the release of stalled rescue loan money as state coffers run low. Greece has taken as “many steps as possible” toward reaching an agreement with bailout lenders, Prime Minister Alexis Tsipras said Tuesday. “It is now the turn of our (European) partners to take the steps needed.”

VERIZON AND AOL: Verizon, the biggest U.S. mobile phone carrier, agreed to buy Internet pioneer AOL for about $4.4 billion, a 15 per cent premium to its closing price Monday. The acquisition is the latest effort by a wireless company to tap into some of the money shifting to streaming video and mobile devices. Shares in AOL jumped 18.6 per cent. The stock added $7.93 to $50.52. Verizon slipped 18 cents, or 0.4 per cent, to $49.62.

ENERGY: Benchmark U.S. crude added 60 cents to $61.35 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose 50 cents on Tuesday to close at $60.75. Brent crude, used to price international oils, advanced 30 cents to $67.68. It soared $1.66 on Monday to $67.38.

CURRENCY: The euro fell to $1.1215 from the previous session’s $1.1218. The dollar fell to 119.79 yen from 119.88 yen.