European stocks weakened again Friday, even as U.S. equity futures held on to firm early gains, as investors continue to track developments in government bond markets amid one of the most sustained rises in borrowing costs for three decades.
The Stoxx Europe 600 benchmark, the region's broadest measure of share prices, was little-changed by mid-morning in Frankfurt despite stronger-than-expected fourth quarter GDP data from Germany and a host of earnings from some of the Continent's biggest companies.
The DAX performance index fell 0.2%, weighed down by financials and industrials, while Britain's FTSE 100 was marked 0.3% to the downside following disappointing market reaction to earnings from state-owned lender RBS plc (RBS) - Get Report and British Airways parent International Consolidated Airlines Group (ICAGY) .
Early indications from U.S. equity futures, however, suggest a stronger start to the Friday session on Wall Street, with contracts tied to the Dow Jones Industrial Average marked 120 points, or 0.4%, to the upside, indicting an opening bell gain of around 180 points. Contracts linked to the broader S&P 500 seen 8.25%, or 0.30%, higher from Thursday's closing levels.
However, both contracts have weakened throughout the European session and bond market moves as well as the elevated levels of the VIX, the benchmark of near-term equity volatility, are likely to continue to influence both stocks and foreign exchanges markets, particularly following yesterday's 7-year bond auction from the U.S. Treasury, which drew the weakest investor demand since November and the highest yield for that maturity -- 2.839% -- in at least seven years.
More broadly, the sustained 8-week rise in U.S. government bond yields, which has taken 10-year notes from 2.4% at the start of the year to 2.91% in overnight Asia trading, is the longest bear market since 1994, according to Bloomberg data, and continues to entice portfolio managers to consider allocating funds to fixed income investments in order to lower risk and generate returns.
That said, comments yesterday from St. Louis Fed President James Bullard, who told CNBC Television that the markets might be getting ahead of themselves in assuming four rate hike this year, as well as dovish minutes from the European Central Bank's January policy meeting, allowed stocks in Asia to extend gains seen on Wall Street Thursday, with the MSCI Asia ex-Japan benchmark rising 1.05% into the close of trading and Japan's Nikkei 225 ending the week with a 0.72% gain to close at 21,892.78 points.
Global oil markets were also active, although yesterday's mixed set of data from the Energy Information Administration, which showed domestic crude inventories falling by 1.2 million barrels and U.S. crude exports rising to a near record 2 million barrels per day last week allowed for a broadly stable market in Friday trading.
Brent futures contracts for April delivery, the global benchmark, were seen 15 cents per barrel lower from their Thursday close at $66.24 while WTI contracts for the same month, which are more closely-linked to U.S. prices, were 8 cents lower at $62.69 per barrel.