Stocks fall, dollar recovers

Wednesday, 4 May 2011 00:00 - - {{hitsCtrl.values.hits}}

Reuters: World stocks fell on Tuesday as investors pocketed gains after a five-session winning run, while the dollar recovered from a 33-month-low, sending crude and copper prices lower.

Equities have been buoyed by robust company earnings in the United States and Europe though high commodity prices, driven by U.S. ultra-loose monetary policy and turmoil in oil-rich Middle East and North Africa, could pose a threat to company margins.

World stocks measured by the MSCI All-Country World Index shed 0.5 percent after five sessions of gains, and the emerging share index lost one percent.

The MSCI world gauge has risen 7.7 percent this year.

The FTSEurofirst 300 index of leading European shares dropped 0.1 percent, while Asia-Pacific shares excluding Japan fell 1.3 percent.

“I don’t think if we look at the fundamental background, we have the basis for a major sell-off, but we have come far enough in a short space of time and there could be a little consolidation,” said Mike Lenhoff, chief strategist at Brewin Dolphin, which has 25 billion pounds of assets under management.

Nearly 80 percent of 327 S&P 500 companies that have so far reported first-quarter earnings have either beat or met analysts’ forecasts, data from Thomson Reuters StarMine showed.

Of the 98 European companies that have reported quarterly results, 56 percent of them either beat or met expectations.

Copper prices eased 0.6 percent and Brent crude lost 0.5 percent to trade below $125 a barrel.

Analysts said the death of al Qaeda leader Osama bin Laden could reduce the threat against the United States in the long term, but the potential for retaliatory attacks in the short-term would support oil prices.

“The potential of violence from retaliation has more upside than downside risks, and would support the market,” said Serene Lim, commodities analyst with ANZ Bank in Singapore.

DOLLAR BOUNCES

The dollar index, which tracks the dollar against a basket of major currencies, was up 0.3 percent at 73.170 after hitting a 33-month trough on Monday.

Sentiment for the dollar has been overwhelmingly bearish as near zero U.S. interest rates have made it the funding currency of choice in carry trades that helped propel the Australian dollar to a 29-year-high of $1.1012 on Monday.

“In the near-term the dollar’s fall could extend further still but levels are now becoming more stretched in terms of valuation and positioning. Momentum indicators are also showing the dollar is very oversold,” said Lee Hardman, currency strategist at BTM-UFJ in London.

The Australian dollar dipped 0.6 percent to $1.0878 on Tuesday after the country’s central bank kept interest rates unchanged at 4.75 percent as expected, while the Canadian dollar rose after the ruling Conservatives won a crushing victory in a federal election.

The euro was down 0.3 percent at $1.4783, though still up more than 10 percent against the dollar this year.

Credit Suisse said in a note that the common currency could appreciate another 5 to 10 percent before it became a problem for the euro zone economy.

“The current level of the euro is not a significant problem for the real economy. It could probably appreciate by a further 5-10 percent before it became so. That would be consistent with a euro-dollar cross rate of over $1.60,” Credit Suisse said.