A shares trader checks his trading systems at the start of the trading session the day after the Brexit deal vote of the British parliament at the stock exchange in Frankfurt, Germany, on January 16 2019. Picture: REUTERS/KAI PFAFFENBACH
A shares trader checks his trading systems at the start of the trading session the day after the Brexit deal vote of the British parliament at the stock exchange in Frankfurt, Germany, on January 16 2019. Picture: REUTERS/KAI PFAFFENBACH

London —  The euro retreated while stocks and bonds rallied on Thursday, as painful data from France and only modestly better readings from Germany set the tone for the European Central Bank's first meeting of 2019.

Progress, or lack of it, in US-China trade talks was also in focus, as were signs of a Brexit delay. Emerging-market bulls were charging in Venezuela after a US move against the country's president, Nicolas Maduro.

In France, a survey showed business activity pulled back at the fastest rate in over four years in the face of weakening demand and the impact of anti-government protests.

Germany's services sector accelerated more than expected, but that was largely offset by the first contraction in manufacturing in more than four years.

The euro fell 0.2% to $1.1350, and while an upbeat tech sector helped stocks, it meant there would be plenty of concerned questions for European Central Bank President Mario Draghi later.

"At the moment their guidance [to raise interest rates later this year] isn't really on track," said JPMorgan Asset Management fixed-income portfolio manager Seamus Mac Gorain, although he added it was probably still too early to change them dramatically.

Traders were clearly expecting some comforting words. The ECB will keep its subzero interest rates on hold at 12.45pm GMT and Draghi holds a news conference at 1.30pm GMT.

Eurozone bond yields fell across the board and France's gloomy data pushed its 10-year yield down to a six-month low of 0.61%. The main market gauge of eurozone inflation expectations dropped to a seven-month low.

Trade talks

Overnight in Asia, the mood was also cautious. MSCI's broadest index of Asia-Pacific shares outside Japan added 0.3%, helped by modest gains in China. Japan's Nikkei eased 0.1%.

China had taken positive cues from financial firms' profits and the approval for a new technology board in Shanghai. Wall Street had also ended higher after upbeat earnings reports, including from IBM.

However, White House economic adviser Kevin Hassett said in a CNN interview that the US economy might see zero growth in the first quarter if the partial government shutdown lasts the entire quarter.

Japan's subdued day had also come its export orders fell at the fastest pace in two-and-a-half years, confirming that slower growth was hitting another major developed economy.

US President Donald Trump said on Wednesday that trade talks with China were going well and China "very much wants to make a deal”.

But sources familiar with the talks say the two sides are still far apart on structural elements critical for a deal.

Analysts at Capital Economics warned that China's economic slowdown looks set to be of a similar scale to 2015-2016, though there are some differences, notably less pressure on the yuan and no signs of major capital outflows.

"Since China makes up 19% of the world economy, the slowdown this year compared to last will knock 0.2 percentage points off global growth," they said.

In currency markets, the dollar rebounded in European trading. It was at ¥109.70 after reaching its high for the year, ¥110.00 against the Japanese currency.

Sterling eased off its 11-week high of almost $1.31 amid growing signs that Brexit was more likely to be delayed than the government risking leaving the EU without a deal on March 29.

The euro's latest slide means it has now lost more than 1.5% percent against the US dollar since climbing to a three-month high of $1.1570 on January 10.

The Australian dollar suffered a setback when one of the country's major banks raised mortgage rates, bolstering the case for a cut in official rates.

The yield on benchmark 10-year treasury notes fell to 2.746%, compared with its US close of 2.755% on Wednesday. Oil prices dropped amid concern over slowing global economic growth.

US West Texas Intermediate (WTI) crude futures fell 0.5% to $52.38 a barrel. Brent crude futures were last down 0.4% at $60.87. 

Reuters