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European Shares Pause After Rally in Asia

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01/07/2019 | 04:19am EST

By Joanne Chiu and Will Horner

European shares edged lower following a strong session in Asia on Monday, after U.S. stocks surged in the previous session on fresh signs of economic strength and the Federal Reserve said it would be flexible with its interest-rate policy.

The pan-continental Stoxx Europe 600 fell 0.1% in opening trade. Germany's Xetra DAX, France's CAC 40 and the U.K. FTSE 100 were all down 0.1%.

U.S. stock futures pointed to opening gains of 0.5% for the Dow Jones Industrial Average and Nasdaq Composite. S&P 500 futures were 0.4% higher.

The yield on the U.S. 10-year Treasury note edged down to 2.651%, from 2.661% on Friday. Yields and prices move in opposite directions. The U.S. dollar softened, with the WSJ Dollar Index, which measures the dollar against a basket of 16 of its peers, down 0.2%.

In Asia, equities made strong gains. Japan's Nikkei 225 led the rally, rising 2.4%, helped by a calmer yen, which steadied at 108.21 a dollar. South Korea's Kospi climbed 1.3%, Australia's S&P/ASX 200 benchmark rose 1.1% and Hong Kong's Hang Seng Index rose 0.8%.

China's Shanghai Composite advanced 0.7%. It rallied 2.1% Friday ahead of a well-flagged move by the People's Bank of China to add a net 800 billion yuan ($116.48 billion) of liquidity into the banking system by cutting banks' reserve requirements.

The strong climbs in Asia followed a stock surge on Wall Street Friday, after better-than-expected U.S. nonfarm payroll figures suggested a healthy labor market and eased investors' concerns about the potential for a U.S. economic slowdown.

Comments later that day from Federal Reserve Chairman Jerome Powell--who said economic data suggested good momentum heading into the new year--added a further boost to see the Dow industrials close 750 points higher, or 3.3%.

Market participants were also awaiting developments from two days of trade negotiations between the U.S. and China, which were set to begin Monday.

Felix Lam, a portfolio manager at BNP Paribas Asset Management, said policy makers in the world's two largest economies had helped lift market sentiment, but the key question mark was whether the two countries could reach a trade deal. "Any positive outcome from the trade talks would have a more long-lasting impact on the earnings trajectory of corporations in Asia," he said, adding delays would hit corporate profits.

Nomura chief China economist Ting Lu said Beijing's latest moves to unlock liquidity in the financial system "reflect its increasing concerns about looming growth headwinds and its increased willingness to step up policy easing and stimulus."

After Friday's announcement of two cuts totaling 1 percentage point to Chinese banks' reserve requirement ratios, Mr. Lu expects the ratios to be reduced by another 1.5 percentage points this year. He also expects the central bank to extend more medium-term lending facilities to banks, which then would make those funds available to small businesses and private firms.

In commodities, Brent crude advanced 1.9% to $58.14 a barrel. Gold was up 0.5% to $1,292.40 an ounce.

Write to Joanne Chiu at joanne.chiu@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
CAC 40 -0.42% 4847.53 Real-time Quote.3.07%
CHINA-SHANGHAI COMP -1.18% 2579.7 End-of-day quote.3.28%
DAX -0.41% 11090.11 Delayed Quote.5.03%
DJ INDUSTRIAL -1.22% 24404.48 Delayed Quote.4.62%
FTSE 100 INDEX 0.28% 7234.11 End-of-day quote.0.00%
HANG SENG -0.78% 26954.94 Real-time Quote.4.29%
KOSPI COMPOSITE INDEX -0.32% 2115.76 Real-time Quote.3.64%
NASDAQ 100 -2.03% 6646.813 Delayed Quote.7.18%
NASDAQ COMP. -1.91% 7020.3562 Delayed Quote.7.87%
NIKKEI 225 -0.70% 20580.55 Real-time Quote.3.55%
S&P 500 -1.42% 2632.9 Delayed Quote.6.54%
S&P/ASX 200 -0.26% 5843.7 Real-time Quote.4.32%
US DOLLAR INDEX -0.04% 96.3 End-of-day quote.-0.40%
WTI 0.44% 53.09 Delayed Quote.17.60%
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