Shares bounce after worst week of year, Brexit stresses sterling

By Marc Jones

LONDON (Reuters) - Talk of more stimulus from China helped world share markets regain some ground on Monday after a slew of disappointing economic data and growth warnings from central banks triggered their worst weekly performance so far this year.

China's main bourses made back almost half the 4 percent they lost in Friday's mauling as the central bank chief pledged more support, but not everywhere was so spritely.

Wall Street was expected to bounce only modestly after falling every day last week and Europe managed only a 0.2 percent gain as an unexpected drop in German industrial data also kept the euro pinned near a 20-month low and Bund yields inching back towards zero.

London's FTSE made 0.8 percent but that was partly the flip side of a near three-week low of $1.2950 for the pound as the chances of Prime Minister Theresa securing support for her Brexit deal at home this week looked increasingly dim

Britain is due to leave the EU in 18 days. Kallum Pickering, an economist at Berenberg, said a delay to Brexit, which UK lawmakers can push for if May's deal fails this week, would be modestly positive for sterling as it would cut the near-term risk of Britain leaving without a transition period in place to minimise economic disruption.

"However, it would not completely eliminate the hard Brexit risk which could still come at the end of a delay or as a result of a second referendum," he added.

Norway's crown was an FX gainer after strong inflation data raised expectations that its central bank will increase interest rates again soon.

With market volatility low, investors have rushed to buy currencies where central banks are still raising rates or economic data has pointed to a brighter economic outlook.

"This makes (a) March rate hike from Norges Bank a complete done deal, which is a positive for the currency," Nordea strategists said.

Optimism over Norway's outlook contrasted with caution over the broader European economy after the European Central Bank last week slashed its growth forecasts and postponed its likely first rate hike.

Short euro bets, already near a 2-1/2 year high according to latest futures positioning data, are likely to receive a further boost, investors said.

The single currency shuffled sideways at $1.1247 after falling 1.2 percent last week, its biggest weekly loss in more than six months.

BOEING DOWN

The dollar was flat and Wall Street futures pointed to a fractionally higher restart for U.S. markets after 2019's worst week to date

Boeing (NYSE:BA), however, tumbled nearly 10 percent in premarket trading after a host of airlines grounded the world's biggest planemaker's new 737 MAX 8 passenger jet following the second deadly crash in just five months.

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Overnight, MSCI's broadest Asia-Pacific index had climbed 0.4 percent, paring a quarter of Friday's 1.6 percent fall. Japan's Nikkei gained 0.5 percent too after four consecutive sessions in the red.

China's blue-chip CSI300 index jumped 1.9 percent after slumping 4 percent on Friday after a mix of poor trade data and a rare "sell" rating on a major insurer rattled some local traders.

China's central bank on Sunday pledged further support by spurring loans and lowering borrowing costs. It came as data showed new bank loans fell a bit more than expected in February, while money supply growth also missed forecasts.

Bond markets were still trading last week's ECB change of tack and Friday's news that the U.S. economy created only 20,000 jobs in February, the weakest reading since September 2017.

German Bund yields inched backed toward zero and the 10-year U.S. Treasury last yielded 2.64 percent, having hit a two-month low of 2.607 percent.

At 2.47 percent, the two-year U.S. yield was close to the Fed funds rate of around 2.40 percent. Fed funds futures are now pricing in a more than 20 percent chance of a rate cut this year.

"The headline (payrolls) reading was so weak that the market could have reacted more aggressively. I would say markets reacted relatively calmly because there were elements that suggest weakness is temporary," said Tomoaki Shishido, fixed income strategist at Nomura Securities.

Retail sales figures for January due at 1230 GMT will be the next key focus given December's surprisingly weak reading.

Oil was the main focus for commodity markets after Saudi oil minister Khalid al-Falih indicated that an end to OPEC-led supply cuts was unlikely before June.

U.S. West Texas Intermediate (WTI) crude futures rose 0.5 percent to $56.35 per barrel. Brent futures went up 0.4 percent to $62.98 a barrel.

Gold eased about 0.1 percent to $1,296.62 per ounce, after briefly breaching $1,300 for the first time since March 1 in the previous session.