Markets Pause Ahead of U.K. Election, ECB Meeting -- Update

By Jon Sindreu Features Dow Jones Newswires

Investors regained some moderate risk appetite Wednesday, ahead of key political events later in the week.

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The Stoxx Europe 600 was mostly unchanged in early European trade, while futures pointed to a flat opening for the S&P 500. Still, some of the riskier sectors rose, with eurozone banks up 0.9%.

Money managers have flocked into haven assets this week, like government bonds and gold, waiting for a series of scheduled events that have the potential to create big moves in global markets.

On Thursday, the European Central Bank will provide further clues on how long ultraloose monetary policy will remain in place, and testimony by former U.S. Federal Bureau of Investigation Director James Comey will test the stability of Donald Trump's presidency. Early results for the U.K. general election will start coming in Thursday night, with the latest polls suggesting a very tight race.

The trio of risk events have been "sufficient to keep markets on the defensive," OCBC Bank said in a note Wednesday.

But there were signs of stronger confidence Wednesday. Gold, which is one of the market's preferred havens, gave up some of this week's gains and was down 0.2%. Meanwhile, the yield on 10-year U.S. government debt was up slightly, after closing overnight at the lowest level since Nov. 10.

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"It's less about the rallying into safety havens and more about toning down interest rate expectations," said Zhiwei Ren, fund manager at Penn Mutual Asset Management. "I don't think inflation can surprise on the upside at this point, and that means the Fed can take its time to raise rates."

The dollar bounced back and was up 0.2% against the euro.

In Asia, the Japanese Nikkei Stock Average and Australia's S&P/ASX 200 both closed flat, while Korea's Kospi lost 0.4%. The Shanghai Composite Index was up 1.2%.

During the second half of last year, global markets rallied because they expected higher growth and inflation. While stocks have remained strong, bond yields have returned most of the gains, a sign that recent gains in inflation are now seen as the result of higher oil prices rather than stronger consumer demand. This means central banks, including the ECB, are likely to react more cautiously than previously believed, analysts said.

"Tomorrow might bring a little disappointment for some," said Antje Praefcke, analyst at German lender Commerzbank AG, who nonetheless believes ECB President Mario Draghi "would have to be very outspoken, vehemently rejecting a change of the forward guidance for the market to lower the market's rate expectations and for the euro's upside momentum to be slowed."

Ese Erheriene contributed to this article.

Write to Jon Sindreu at jon.sindreu@wsj.com

(END) Dow Jones Newswires

June 07, 2017 04:24 ET (08:24 GMT)