World stocks slipped and core government bonds steadied today as investors trimmed positions before the end of a first quarter that has seen abundant central bank liquidity and improving US economic data buoy a range of assets.
Such shifts were also evident in foreign exchange markets, where the yen's gains against the dollar was accentuated by Japanese exporters' sales of foreign currency before the March 31st end to Japan's fiscal year.
While European stocks fought a losing battle to stay in positive territory, futures indicated that US stocks would open higher.
With comments this week by Federal Reserve chairman Ben Bernanke keeping alive speculation about further US monetary stimulus, analysts predicted US data would be a focal point.
"The focus remains on growth indicators," said Lauren Rosborough, currency strategist at Société Génerale.
"To the extent that Bernanke has raised the ante on US growth indicators, US durable goods orders due for release this afternoon will be the market's focus."
The consensus in a Reuters poll is for a 2.0 per cent rise in durable goods orders in February, excluding the volatile air and defence components.
MSCI's main global stock index eased to 335.75, retreating from an eight-month high of 338.28 touched on Tuesday. The pan-European FTSEurofirst 300 index fell 0.1 per cent to 1,082.57 but was still on track for a fourth straight month of gains.
Fund managers said the European index, which has jumped about 8 per cent in the year to date and is on track for its best first-quarter performance since 1998, could struggle in the short term.
"The performance of equity markets has been phenomenal this quarter, which makes me believe that upside will be limited in the next few days," Lex van Dam, hedge fund manager at Hampstead Capital, which manages $500 million of assets, said.
A rise in euro zone money supply growth and a steadying of loans to the private sector had lent some support earlier in European trading.
With a sale of medium-term Italian debt the next test of investor demand for peripheral euro zone debt, the German Bund future was little changed on the day at 137.39.
Italian and Spanish 10-year yields each slipped a few basis points, to 5.08 per cent and 5.31 per cent respectively, as investors positioned for quarter-end.
"Italy saw quite a big sell-off yesterday by recent standards," Nick Stamenkovic, strategist at RIA Capital Markets said, adding it could be a correction.
"It will be difficult for Italian bonds to rally ahead of the auction tomorrow and while uncertainty persists over the outcome of the labour market reforms which have still to be passed through parliament."
Italian six-month borrowing costs fell further towards 1 per cent today, marking their lowest level since September 2010, as a bill auction drew good demand ahead of Thursday's sale.
Italy, whose bonds were the euro zone's weakest performers yesterday after an auction of inflation-linked debt, is due to sell five- and 10-year bonds tomorrow.
"I think already the impact of the LTRO is beginning to wane," said one trader, referring to the European Central Bank's ultra-cheap three-year loans to banks, which have helped bring down borrowing costs for Italy and Spain this year.
"I think we are waiting for the next blow-up ... I think Europe is massively complacent in thinking they have solved everything."
Spain and the European Commission denied media reports yesterday that Brussels had told the Madrid government to take an EU-led bailout to refinance the country's troubled banks.
Reuters
