European bonds rise as ECB buys debt; Greece leads stocks lower

European bonds rose as the region’s central bank began buying sovereign debt. Greece led declines in stocks while shares in emerging markets fell to a three-week low.

Yields on 10-year German bunds dropped four basis points to 0.35 percent at 6:25 a.m. in New York, and France’s slid to 0.64 percent. The Stoxx Europe 600 Index retreated 0.6 and Greece’s ASE index dropped 3 percent. Standard & Poor’s 500 Index futures lost 0.2 percent. The MSCI Emerging Markets Index declined 0.9 percent. Oil fell for a fourth day in London after China cut crude imports and U.S. natural gas slid on forecasts for warmer weather.

Anticipation of the European Central Bank’s 1.1 trillion- euro ($1.2 trillion) plan to fight deflation has fueled a bond rally that’s sent yields across the euro region to record lows. Greek stocks and bonds fell after European officials said the country’s latest proposals fell short of what was put forward two weeks ago and Greek ministers floated the prospect of a referendum.

“The QE purchases are having the expected effect and the market is very positive,” said Michael Leister, a senior rates strategist at Commerzbank AG in Frankfurt. “In the core we’re seeing yields dropping sharply lower led by the ultra-long end so these are very much QE style moves.”

Italy’s 10-year yields dropped three basis points to 1.29 percent and Spain’s yields declined two basis points to 1.28 percent, while Portugal’s was little changed at 1.75 percent.

The ECB and Eurosystem national central banks have started purchases under the Public Sector Purchase Programme, the ECB said in a Twitter post.

Yields on German notes as far out as six years were already below zero and France’s two-, three- and four-year yields were also negative.

Fed Rates

A bigger-than-projected increase in U.S. payrolls and surging Chinese exports to America underscored how the world’s largest economy is diverging from others as the Federal Reserve ponders when to begin raising interest rates. The odds of a U.S. rate increase by September jumped to 60 percent, from 49 percent on Thursday, futures showed.

The euro rebounded, gaining 0.4 percent to $1.0888 after dropping 1.7 percent on Friday, the steepest decline since Jan. 22. The Bloomberg Dollar Spot Index slipped 0.2 percent to 1,196.35 on Monday, after reaching its highest level in data going back to 2004.

The Stoxx 600 declined after a five-week rally pushed it to its highest level since July 2007. All 19 industry groups dropped, with real estate companies falling the most.

Greece’s ASE was heading for a one-month low, with a gauge of banks falling 5.3 percent. Its three-year note yield climbed 127 basis points to 15.31 percent, the biggest increase since Feb. 16 and the 10-year rate rose 46 basis points to 9.87 percent.

Apple Inc. increased 1 percent in early New York trading before the company gives details on its smartwatch.

The MSCI Emerging Markets Index dropped for a seventh day in the longest losing streak since Dec. 16. Equity gauges in Indonesia, India, South Africa and South Korea slid at least 1 percent.

Chinese Banks

Banks led Chinese stocks higher after regulators said they may allow lenders to enter the brokerage business. The Shanghai Composite Index climbed 1.9 percent, erasing a loss of as much as 1.3 percent, and Hong Kong’s Hang Seng China Enterprises Index added 0.6 percent. The China Securities Regulatory Commission said it’s considering allowing banks to apply for securities licenses.

Mainland equities dropped earlier on concern new share sales will divert funds from existing equities and after data showed imports slid more than forecast last month.

Imports dropped 20.5 percent in February from a year earlier and exports surged more than 48 percent, boosting the trade surplus to $60.6 billion, above January’s record of $60 billion, customs data showed on Sunday. The import and export readings were probably skewed by the week-long Lunar New Year holidays, which was later in 2015.

Brent crude fell 1.4 percent in London to $58.90 a barrel amid speculation that a global oversupply will persist after China cut crude imports for a second month. West Texas Intermediate slid 0.4 percent to $49.41.

Oil Imports

Crude imports in China, the world’s second-largest oil consumer, fell 8.7 percent in February from the previous month. While prices have rebounded this year, the rally may reverse as world crude inventories increase, according to a report from Goldman Sachs Group Inc.

U.S. natural gas futures dropped 3.6 percent to $2.737 per million British thermal units. Forecasters are predicting that bitter cold weather will soon end, curtailing demand as production expands.

Gold climbed from a three-month low on speculation of increased demand in China. Bullion for immediate delivery gained 0.6 percent to $1,173.85 an ounce. Silver added 0.4 percent. Copper advanced 0.5 percent and zinc rose 0.3 percent.

[Bloomberg]