September 10, 2012 / 3:37 AM / in 5 years

Global shares slip as euro zone faces week of decisions

Traders works at their desks at the Frankfurt stock exchange September 6, 2012. REUTERS/Alex Domanski

LONDON (Reuters) - Global stocks and the euro dipped on Monday as investors cashed in some of last week’s sharp gains ahead of a German ruling on the euro zone’s new bailout fund, Dutch elections and potential new stimulus from the U.S. Federal Reserve.

The European Central Bank’s statement last week that it was prepared to buy an unlimited amount of strained euro zone government bonds pushed European shares to a 13-month high and the euro to a four-month peak on hopes it could mark a turning point in the bloc’s 2-1/2 year crisis.

Investors started the week by taking some of that profit off the table. The MSCI index of top global shares was down 0.1 ahead of the opening bell on Wall Street .MIWD00000PUS, with the euro and stock markets in London .FTSE, Paris .FCHI and Frankfurt .GDAXI all slightly lower. .EU .N

U.S. stock index futures also pointed to a lower open on Wall Street, with futures for the S&P 500, Dow Jones and Nasdaq 100 all down just over 0.2 percent.

Europe faces another testing week, with Dutch voters going to the polls and Germany’s constitutional court set to rule on new powers for the European Stability Mechanism, the euro zone’s new bailout fund, both on Wednesday.

Since ECB President Mario Draghi first mooted the ECB’s new crisis plan on July 26, world stocks have rallied more than 8 percent, euro zone blue chips .STOXX50E have jumped almost 20 percent and the euro has risen more than 4 percent. Analysts are wondering whether the gains can continue.

“The Draghi effect obviously helped the markets hugely, so people are likely to be a bit more hesitant this week,” said Hans Peterson, global head of investment strategy at SEB private banking.

“Risk appetite is likely to be on the way up, but we have to clear some hurdles, and the things in Europe have to go according to plan. The key issue this week is the approval of the ESM by the German constitutional court.”

Strategists at Goldman Sachs also issued an upbeat note on equities, saying that while there were worries over China’s wobbling growth, the brighter European news and signs of gradual improvement in the U.S. were both positives.

“There is still room for market rallying,” they said, citing their target for the Eurostoxx 50 to hit 2,700 points in the next 12 months. “From current levels, however, we expect further gains through to year-end, but at a slower pace,” they added.

BOND FOCUS

The euro followed the downward trend, easing against the dollar, but stayed close to a near four-month high hit on Friday after below-forecast U.S. jobs data fanned speculation the Federal Reserve may launch more monetary stimulus this week.

Hopes that powerful ECB intervention in Italian and Spanish bond markets could finally draw an end to the seemingly endless euro crisis has seen massive upward shifts across global markets, from European stocks and treasuries to commodity-reliant economies.

Spanish 10-year yields have tumbled more than two percentage points from an unsustainably high 7.8 percent to around 5.6 percent, while the reduced demand for safe-haven German debt has pushed equivalent yields up 36 bps from their record lows to stand at 1.48 percent.

Spain’s borrowing costs hit a fresh five-month low on Monday while German Bund futures bounced around in choppy conditions, supported initially by worries over Greece’s fiscal repair plans and Fed aid hopes before going into negative territory around midday.

U.S. markets are waiting eagerly to see whether the latest data have convinced the Federal Reserve that more stimulus is required. The benchmark S&P 500 index rose 2.3 percent last week, its biggest weekly gain in three months.

SEB’s Peterson said it was still uncertain whether the U.S. central bank would act and cautioned that any new support was likely to provide a temporary rather than a long-term lift.

“What is really important here is the wider macro picture, whether the euro zone sorts itself out and what happens in China and Asia,” he added.

Fresh data from China on Monday showed exports grew at a slower pace than forecast last month while imports surprisingly fell, underlining weak domestic demand as the global economic outlook dims.

Oil markets are riding high, underpinned both by hopes that economic stimulus around the world will fuel growth and geo-political tensions in parts of the Middle East, the world’s most important oil-producing region.

Brent crude futures for October delivery were trading 46 cents higher at $114.71 per barrel by 0848 EDT, after settling up 76 cents on Friday. U.S. crude was trading up 7 cents at $96.49 per barrel.

“Chinese data had been expected to be weak, so to some extent it has been taken into account in oil prices, but having said that, it basically caps the upside,” said Masaki Suematsu, energy team sales manager at Newedge Japan.

Additional reporting by Christopher Johnson; Editing by Will Waterman

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