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The euro retreated towards a four-month low in the wake of upbeat U.S. economic data and the European Central Bank’s monetary easing. (KAI PFAFFENBACH/REUTERS)
The euro retreated towards a four-month low in the wake of upbeat U.S. economic data and the European Central Bank’s monetary easing. (KAI PFAFFENBACH/REUTERS)

Premarket: Global stocks slip from peaks, euro dips to 4-month low Add to ...

Stocks slipped from near recent highs on Wednesday while the euro retreated towards a four-month low in the wake of upbeat U.S. economic data and the European Central Bank’s monetary easing.

Profit warnings from Germany’s Lufthansa and France’s Vallourec dented investors’ appetite for equities following a sharp rally, with the FTSEurofirst 300 index of top European shares losing 0.3 per cent.

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“Markets have risen a lot lately, so there’s very little room for disappointment,” said Alexandre Baradez, chief market analyst at IG France.

“The new ECB measures are positive, but it’s going to take a while before we see any impact on the real economy. Stocks seem to have gotten ahead of themselves and are ripe for a correction.”

The euro slipped across the board, with the dollar’s yield advantage over the single currency widening.

It fell 0.1 per cent to $1.3536, nearing a four-month low of $1.3503 set last Thursday shortly after the ECB cut interest rates to record lows and took its deposit rate into negative territory for the first time.

The euro has also been under pressure against the dollar following last week’s U.S. monthly jobs data which showed U.S. employers maintained a solid pace of hiring in May.

The single currency also hit a seven-month trough on the higher-yielding Australian dollar and to near its lowest against the pound since late 2007.

Investors looked to borrow euros at super-low rates and buy higher-yielding assets abroad, the so-called carry trade.

“The chase for yield looks like it has further to run,” said Shane Oliver, head of investment strategy at AMP Capital.

“The ECB’s actions provide a reminder global monetary conditions remain very easy, which is supportive of relatively high yield assets and growth assets generally.”

On the fixed income front, yields on the euro zone’s lower rated bonds rose, as upcoming debt auctions prompted investors to book profits after a fall to record lows triggered by the ECB’s measures.

Spanish and Italian yields were 3 basis points higher at 2.66 per cent and 2.82 per cent, respectively. Portuguese yields rose 2 bps to 3.39 per cent before Lisbon’s first debt auction since the end of its bailout programme in May.

Portugal will offer up to €750-million in 10-year bonds, while Italy plans to sell up to €8.5-billion of three-, seven– and 30-year bonds on Thursday.

German Bund futures were 34 ticks lower, at 144.89.

NIKKEI BUCKS TREND

Asian stocks dipped from recent peaks, while Japan’s Nikkei bucked the trend, gaining 0.5 per cent after MSCI’s decision to remove South Korea and Taiwan indexes from its review list for reclassification to developed markets, keeping them in the emerging markets classification.

There had been speculation Tokyo equities would take the brunt of rebalancing if Korean and Taiwanese shares were reclassified to developed markets.

Brent futures added 24 cents to $109.76 a barrel, lifted by expectations that a drop in U.S. gasoline stockpiles pointed to a healthy outlook for demand.

The market was also watching the unfolding crisis in Iraq, where an al Qaeda splinter group seized control of the city of Mosul. The United States said it would support a strong, coordinated response to the aggression, while Oil Minister Abdul Kareem Luaibi aimed to assure markets that any state of emergency would not impact oil exports.

Gold added $1.01, to $1,261.50 an ounce, off a four-month low of $1,240.61 hit last week, while zinc in London and Shanghai hit the highest in around 15 months as improving demand met tight supply, and copper premiums fell further in China as traders faced tougher financing conditions in the wake of a fraud investigation.

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