By Marc Jones
LONDON (Reuters) - The dollar stayed strong but stocks wobbled and metal markets buckled badly on Thursday, as signs that China was resorting to credit-fuelled stimulus again helped drive its currency to a one-year low.
Asian shares had struggled following the moves and Europe's bourses were mostly in the red as traders banked some of the recent gains that had hoisted the STOXX 600, DAX and France's CAC40 to 1-month highs. (EU)
Wall Street was expected to ease off a 5-month high (N), while Britain's Brexit-bruised pound was below $1.30 for the first time in ten months, as mixed retail figures added to constant political turmoil and Wednesday's weak inflation data.
The yen at 113 per dollar, euro at $1.16 and most other European currencies were all weaker too. Instead of politics, though, they fell because they could not fend off another advance by the dollar which is now near a 1-year high on an aggregate basis. [FRX/]
"Sentiment right now is still very much in favor of buying the dollar," said Crédit Agricole FX strategist Manuel Oliveri.
"It is positively correlated with risk appetite and risk appetite remains supported by the U.S. earnings season and there is a very strong notion among clients that there is further room for improvement."
That appetite had got its latest boost as S&P 500 rose to its highest in more than five months on Wednesday, the Dow Jones climbed for a fifth session and the 'FANGs' group of big tech giants hit fresh all-time highs. (N)
Ongoing trade jitters and developments in China however meant Asia had been a different picture.
China's central bank plans to incentivise banks to expand lending to companies, a source with direct knowledge of the matter said, a proposal that points to another shot of stimulus.
China's foreign-exchange regulator meanwhile said it would keep currency markets stable amid intensifying trade frictions with the United States.
The worries had pummeled the yuan to a one-year low of 6.7800 per dollar and 6.7427 in offshore and onshore trade. (SS)
The technology-heavy Shenzhen Composite stocks index shed 1.0 percent and Shanghai Composite index fell 0.6 percent to head back towards a 1-1/2-year low it had set earlier this month. (SS)
"Market players are looking at both the onshore and offshore exchange rate to determine whether or not the People's Bank of China is intentionally allowing a weaker yuan," said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.
"If the difference between the two markets becomes too big, that could mean the PBOC is intervening in the market."
She noted that although the spread between offshore and onshore yuan had widened recently, it was still far from the levels it hit during the Chinese financial market shock in 2015 when the central bank was seen intervening heavily.
METALS MELT
Metals markets were also in the firing line again. China is the world's biggest consumer of most industrial metals so worries about its economy can have a serious impact.
Copper and nickel were both down over 2 percent on London's metal exchange, while zinc was down more than 3 percent and lead shed 2.5 percent. [MET/L]
Oil and gold also dropped again. Gold hit another one-year low of $1,215 per ounce, while Brent and WTI U.S. crude futures were down 80 and 53 cents at $72.10 and $68.20 a barrel respectively.
Brent has fallen almost 9 percent from last week's high above $79 on emerging evidence of higher production from Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries as well as Russia and the United States.
"The outlook remains negative," said Robin Bieber, technical analyst at London brokerage PVM Oil Associates.
In the fixed income markets the expectation that the United States will continued to raise interest rates this year lifted its 2-year bond yields, which move inverse to the bond's price, to a new decade high. [/US]
Italy's short-dated yields meanwhile tumbled to a one-month low with traders citing reports that the country's new prime minister has said that its euro membership was irreversible. That helped dampen worries caused anti-euro rhetoric during its recent election campaign. [GVD/EUR]