US Federal Reserve chairwoman Janet Yellen. Picture:  REUTERS/JOHATHAN ERNST
US Federal Reserve chairwoman Janet Yellen. Picture: REUTERS/JOHATHAN ERNST

LONDON — European shares rose on Tuesday, shrugging off losses in Asia, while the dollar regained its footing as investors looked to a speech by Federal Reserve chair Janet Yellen for clues to the interest rate outlook following weak US data.

As European markets reopened after a four-day Easter break, oil dipped below $40 a barrel with US crude stockpiles forecast to hit record levels. Signalling continued low levels of inflation, this helped push low-risk government bond yields down.

But the focus was on Ms Yellen, who was due to speak before the Economic Club of New York at 4.20pm GMT. Weaker-than-expected US consumer spending data on Monday prompted analysts to suggest the US central bank would be cautious about raising rates this year. Fed policy makers earlier this month projected two rises in 2016, with some saying the first could come next month.

"After the optimistic comments we had from other Fed officials in the recent past, we expect Yellen to be more balanced compared to a very dovish Fed statement," said Yujiro Gato, currency strategist at Nomura. "Clearly that will be a driver for the dollar today." The pan-European Eurofirst 300 stock index rose 0.6%, with insurers among the gainers after positive broker comments.

The index is down about 8% in 2016 after a turbulent quarter on financial markets triggered by concern over the health of the Chinese economy, uncertainty over US rates and sharp fluctuations in the price of oil and other commodities.

Britain’s FTSE 100 index added 0.8%, MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.4%. Australian shares finished about 1.6% lower while Tokyo’s Nikkei closed 0.2% lower as the weak US data rattled sentiment towards exporters.

China’s blue-chip CSI300 index closed down 1.1% and the Shanghai Composite Index lost 1.3%.

The dollar, which slipped on Monday on the soft data, rose 0.2% against a basket of currencies.

Morgan Stanley said its positioning data showed the market was its most short dollars since June.

The euro fell 0.1% to $1.1178 while the Japanese yen fell 0.2% to 113.62.

Speculation of more monetary stimulus and talk that Japanese Prime Minister Shinzo Abe might delay an unpopular sales tax hike and call a snap election kept the yen under pressure, though Mr Abe insisted on Tuesday that neither option was planned.

Brent crude oil dropped 62c to $39.65. A preliminary Reuters survey of analysts showed US oil stockpiles measured by the American Petroleum Institute were expected to reach record highs.

Oil prices are up about 50% from 12-year lows of about $27 touched in January, but the rally has eased in recent days.

"Given the absence of economic numbers supporting increases in demand we continue to go sideways," said Jonathan Barratt, chief investment officer at Ayers Alliance in Sydney.

Cheap oil has helped depress global inflation. In the eurozone, long-term expectations for price rises stand at 1.44%, way below the European Central Bank’s inflation target of just less than 2%. Yields on German 10-year government bonds, the benchmark for borrowing costs in the eurozone, fell 3.3 basis points to 0.16%.

Gold dipped but held above a one-month low hit on Monday as the weak US data dented prospects of an immediate US rate hike. The metal traded at $1,216.70 an ounce.

Reuters