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China opening up its bond markets, but currency seen as major barrier

China's policymakers plan to open the doors wider than ever to foreign investment in the country's $3 trillion bond market, in part to help shore up the struggling yuan. But the currency is also proving to be a major barrier to the success of their plan.

Foreigners own less than 2 percent of China's $3.3 trillion in outstanding bonds and say getting their cash out of China and recent weakness of the closely controlled currency are obstacles to investment.

Foreign investors are also skeptical they can assess risk accurately when most of the $2.1 trillion in corporate bonds are rated investment grade by domestic rating agencies.

Chinese bonds offer their highest yields in two years and, on the basis of 10-year sovereign debt, the biggest interest rate gap with equivalent U.S. Treasuries in eight months, highlighting the dilemma of a market that is appealing on the one hand but on the other considered to carry too many risks.

"If investors wanted to have more exposure to Chinese bonds, we can do it tomorrow," said Andy Seaman, a partner and chief investment officer of London-based fund manager Stratton Street.

"But unfortunately, they don't. It's very difficult to persuade people because of the currency. They don't want renminbi," he said.

While China's measures to clamp down on capital outflows to reduce pressure on the yuan have captured the headlines since late last year, the country has also been opening up its bond market and liberalizing its financial derivatives, aiming to draw money into the country.

Premier Li Keqiang said in March that China was considering setting up a trading link with Hong Kong this year, similar to one already used to trade stocks, which would give foreign investors much easier access to the world’s third-biggest bond market.

INDEX PROVIDERS

Chinese bonds have been included in some more narrowly focused indexes run byCitigroup (NYSE:C) and Bloomberg and before opening up its bond market China had allowed quota-based foreign investment. China Central Bank Governor Zhou Xiaochuan has said officials would work to open the market further.

"We don't intentionally seek the inclusion of yuan bonds into any particular bond index, but will push forward in this direction on a steady basis," he said in March.

A senior Hong Kong central bank official, familiar with mainland thinking, said the trading link plan and other reforms are aimed at addressing concerns by bond index providers about investors' ability to access Chinese bond markets.

"China knows that quota-based allocations to foreign investors are not very attractive to bond investors and these steps will allow foreign institutions to buy onshore debt sitting comfortably from their offices in Hong Kong or Singapore," the official said. He declined to be identified because he was not authorized to talk to the media.

While these measures might provide easier access for foreign investors to China's bond market, the yuan is no longer a one-way appreciation bet. It fell almost 7 percent in 2016, its biggest decline since a revaluation against the dollar in 2005.

Introducing more currency volatility has helped Chinese authorities shake off speculators, but it has also pushed other investors away too.

Stratton Street's Renminbi Bond Fund, which enables clients to profit from potential yuan appreciation and Asian bond yields, has shrunk by around 80 percent to $70 million since its peak of $380 million in 2012.

An analysis of offshore yuan-denominated bond funds compiled by Morningstar shows total assets under management shrank by nearly half in the last year to about $11.6 billion.

The yuan's outlook against the dollar "remains a hurdle for significant inflows into China's bond markets," said Rohit Arora, a UBS strategist in Singapore.

A Reuters poll conducted in the past week found the yuan is forecast to weaken to 7.07 against the dollar in a year. It was changing hands at 6.91 per dollar on Tuesday.

Analysts and China state media hailed the inclusion of Chinese bonds in three Citigroup government bond indexes as a milestone. But the investment bank stopped short of including them in its widely followed World Government Bond Index (WGBI), which tracks assets of between $2 trillion and $4 trillion.

Inclusion could draw capital inflows into China of hundreds of billions of dollars, HSBC analysts say.

But that may be some time in coming, said Lewis Emmons, principal at Mercer Investment Solutions in Singapore.

"The recent creation of new 'halfway house indices' potentially prolongs the horizon for full inclusion of China bonds in the most common indices," he said.

Asia stocks, dollar subdued after French relief, South Korea vote eyed

Asian stock markets edged down on Tuesday following a flat close on Wall Street, as investors searched for the next catalyst following France's presidential election, while oil inched higher on expectations OPEC supply cuts will be extended.

Financial spreadbetters expect Britain's FTSE 100 (FTSE), Germany's DAX (GDAXI) and France's CAC 40 (FCHI) to all open flat.

The South Korean stock market, which finished at a record high on Monday, is closed for Tuesday's presidential election.

Liberal Moon Jae-in is widely expected to win the presidency, following months of leadership vacuum after former President Park Geun-hye was removed on charges of bribery and abuse of power.

The polls opened at 6 a.m. (2100 GMT on Monday) and will close at 8 p.m. (1100 GMT). The winner is expected to be sworn in on Wednesday after the Election Commission releases the official result.

Allies and neighbors are closely watching the election amid escalating tensions over North Korea's accelerating development of weapons since it conducted its fourth nuclear test in January last year. It conducted a fifth test in September and is believed ready for another.

North Korea would be keen to see a Moon victory. Its official Rodong Sinmun newspaper said in a commentary on Monday the time had come to put confrontation behind the Koreas by ending conservative rule in the South.

"South Korean markets had not registered significant risk-off sentiment similar to other economies pre-elections, and this is no surprise," Jingyi Pan, market strategist at IG in Singapore, wrote in a note.

"The largely similar stance on policies by the Presidential candidates provides little chance of surprise as compared to last week's French election. Meanwhile, the filling of the political vacuum could go a long way to benefitting the economy."

The Korean won weakened 0.25 percent on Tuesday, with the dollar buying 1,135.52 won.

MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) slipped 0.2 percent on Tuesday.

Japan's Nikkei (N225) was slightly lower.

China's CSI 300 index (CSI300) retreated 0.3 percent in its sixth straight session of losses amid concerns over tighter financial regulations. Hong Kong's Hang Seng (HSI) reversed earlier losses to trade up 0.35 percent.

Taiwan stocks (TWII) pulled back to trade 0.25 percent lower on profit taking after earlier surpassing the 10,000-point mark to hit a two-year high.

The MSCI World index (MIWD00000PUS), which touched a record high overnight, dropped about 0.1 percent.

The dollar was flat at 113.285 yen , retaining most of Monday's 0.4 percent gain.

The dollar index (DXY) was also steady at 99.11.

The euro was steady at $1.0927 after tumbling 0.7 percent on Monday.

"The euro's retreat was driven solely by profit-taking. I think it is going to regain momentum over time," said Yukio Ishizuki, senior currency analyst at Daiwa Securities.

French stocks (FCHI) slumped 0.9 percent overnight, their biggest one-day loss in almost three weeks, as investors took profits following strong gains in the run-up to Sunday's vote that saw the market favorite, centrist Emmanuel Macron, elected president.

Germany's DAX (GDAXI) closed 0.2 percent lower, while Britain's FTSE (FTSE) was marginally higher.

On Wall Street, all three major indexes closed flat, holding near recent all-time highs. The CBOE Volatility Index (VIX) closed at 9.77, its lowest since December 1993.

In commodities, oil market sentiment swung between optimism over statements from major oil-producing countries that supply cuts could be extended into 2018 and lingering concerns over slowing demand and a rise in U.S. crude output.

U.S. crude (CLc1) inched up 0.1 percent to $46.47 a barrel.

Global benchmark Brent (LCOc1) also rose 0.1 percent to $49.39.

Copper remained close to the four-month low touched on Monday after data showed a sharp drop on imports into China, the world's biggest consumer.

London copper slipped 0.1 percent to $5,481.50 a tonne on Tuesday, after falling to as low as $5,462.50 on Monday.

Gold recovered from a seven-week trough touched on Monday. Spot gold rose about 0.1 percent to $1,226.60 an ounce.

Oil gives up earlier gains as rising US output, China concerns weigh

Oil prices gave up earlier gains on Tuesday, as concerns over slowing demand and a relentless rise in U.S. crude output undermined the impact of hopes that OPEC-led production cuts could be extended.

Brent crude futures, the international benchmark for oil prices, were at $49.37 per barrel at 0252 GMT on Tuesday, down from a high of $49.60 earlier in the day and near their last close.

U.S. West Texas Intermediate (WTI) crude oil futures were trading at $46.46 per barrel, down from an intra-day high of $46.66 and also little changed from their last settlement.

Traders said that oil markets were under pressure as persistent climbs in U.S. production, especially from shale oil drillers, and concerns over a slowdown in China undermine efforts led by the Organization of the Petroleum Exporting Countries (OPEC) to prop up prices.

U.S. crude production has risen by over 10 percent since mid-2016 to 9.3 million bpd, close to the output of top producers Russia and Saudi Arabia.

"That's making it difficult to drive the stockpiles down to a level OPEC thinks will see prices rise sustainably," said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

U.S. bank Goldman Sachs (NYSE:GS) said that U.S. shale drillers "fundamentally changed" the oil industry due to their ability to ramp up output much faster than conventional producers.

Bank of America Merrill Lynch (NYSE:BAC) said the low oil prices were also due to a slowdown in demand.

"Oil demand growth this year is underwhelming, in part explaining why crude oil prices and refining margins have sold off sharply recently," it said.

AxiTrader's McKenna said that there were concerns about Chinese economic growth as imports and exports slowed.

"The economy could slow more sharply than ... expected," he said.

Top exporter and de-facto OPEC leader Saudi Arabia said on Monday it would "do whatever it takes" to rebalance a market that has been dogged by oversupply for over two years, resulting in crude prices below $50 per barrel.

A cornerstone of the Saudi promise to rebalance the market would be to extend, potentially into 2018, a pledge led by OPEC and other producers including Russia to cut output by almost 1.8 million barrels per day (bpd) during the first half of the year.

Crude Oil Futures - Weekly Outlook: May 8 - 12

Oil futures settled higher on Friday, but still registered a hefty loss for the week as signs of rising U.S. shale production continued to feed concerns about a global supply glut.

The U.S. West Texas Intermediate crude June contract tacked on 70 cents, or around 1.5%, to end at $46.22 a barrel by close of trade Friday. It plunged almost 5% on Thursdayafter hitting its lowest since November 14 at $43.76.

The U.S. benchmark lost $3.11, or almost 6.3%, on the week, the third straight weekly decline, marking the longest losing streak since November.

Elsewhere, on the ICE Futures Exchange in London, Brent oil for July delivery ticked up 72 cents to settle at $49.10 a barrel by close of trade. The global benchmark sank to $46.64 a day earlier, a level not seen since November 15.

For the week, London-traded Brent futures recorded a loss of $2.95, or nearly 5.7%.

Crude has been under pressure in recent weeks amid fears that an ongoing rebound in U.S. shale production is derailing efforts by other major producers to rebalance global oil supply and demand.

U.S. drillers last week added rigs for the 16th week in a row, data from energy services company Baker Hughes showed on Friday, implying that further gains in domestic production are ahead.

The U.S. rig count rose by 6 to 703, extending an 11-month drilling recovery to the highest level since August 2015.

The relentless increase in U.S. output has overshadowed pledged output cuts by major producers.

In November last year, OPEC and other producers, including Russia agreed to cut output by about 1.8 million barrels per day between January and June, but so far the move has had little impact on inventory levels.

Saudi Arabia's OPEC Governor Adeeb Al-Aama said on Friday there is an emerging consensus among OPEC and non-OPEC countries who took part in a global pact to cut crude output on the need to extend the agreement beyond June to help clear a supply glut.

A final decision on whether or not to extend the deal beyond June will be taken by the oil cartel on May 25.

Elsewhere on Nymex, gasoline futures for June gained 2.3 cents, or about 1.6% to end at $1.504 on Friday. It closed down around 2.9% for the week on concern over lackluster demand.

June heating oil tacked on 2.4 cents to finish at $1.436 a gallon. For the week, the fuel lost roughly 4.7%.

Natural gas futures for June delivery rose 8.0 cents to $3.266 per million British thermal units, up 2.5% for the session but 0.3% lower for the week.

In the week ahead, market participants will eye fresh weekly information on U.S. stockpiles of crude and refined products on Tuesday and Wednesday to gauge the strength of demand in the world’s largest oil consumer.

Meanwhile, investors will keep an eye out for a monthly report from the Organization of Petroleum Exporting Counties for further evidence that they are complying with their agreement to reduce output this year.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Tuesday, May 9

The American Petroleum Institute, an industry group, is to publish its weekly report on U.S. oil supplies.

Wednesday, May 10

The U.S. Energy Information Administration is to release weekly data on oil and gasoline stockpiles.

Thursday, May 11

The Organization of Petroleum Exporting Counties will publish its monthly assessment of oil markets.

The U.S. government is to produce a weekly report on natural gas supplies in storage.

Friday, May 12

Baker Hughes will release weekly data on the U.S. oil rig count.

Euro hits 6-month high, Asia shares firm after French vote relief

The euro hit a six-month high against the dollar on Monday while Asian shares gained and U.S. stock futures briefly touched a record high, on investor relief after centrist Emmanuel Macron comfortably won the French presidential election.

Macron's emphatic victory brought comfort to investors and European allies alike, who had been nervous about the risk of another populist upheaval, following Britain's vote to quit the EU and Donald Trump's election as U.S. president - neither of which had been predicted by pollsters or bookmakers.

European shares look set to advance, with financial spread betters expecting a 0.9 percent gain in France's CAC (FCHI), up 0.8 percent in Germany's DAX (GDAXI) and 0.4 percent higher in Britain's FTSE (FTSE).

"Looking ahead towards the end of month, there appear to be few potential risk factors. 'Sell in May' may not happen this year," said Hirokazu Kabeya, chief global strategist at Daiwa Securities.

The common currency gave up gains later, with some market participants citing uncertainties on whether Macron's, rebranded La Republique En Marche, can get a parliamentary majority in elections in June, as a factor.

"We expect the focus to shift to French legislative elections in June. These will be crucial for determining Macron's ability to implement his economic program, which includes labor market reforms that would make it easier for French businesses to hire and fire," said analysts at BlackRock in a note.

Still, the relief of the centrist's victory was palpable.

The euro rose to as high as $1.1024 , its highest in about six months, before stepping back to $1.0984, 0.1 percent below late U.S. levels last week.

"The uncertainty had been low in the first place so we are seeing some buy-on-rumor-sell-on-facts type of trading. But fundamentally, I don't see any changes in the euro's uptrend," said Kazushige Kaida, head of foreign exchange at State Street in Tokyo.

Earlier the common currency hit a one-year high of 124.58 yen (EURJPY=R) and a five-month high of 1.08865 Swiss franc (EURCHF=R).

Easing risk aversion helped the dollar rise to a seven-week high 113.14 yen .

MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) added 0.8 percent, snapping a three-day losing streak.

Japan's Nikkei (N225) gained 2.3 percent to hit a near 1 1/2-year high after a five-day weekend due to the Golden Week holidays.

The S&P 500 mini futures (ESc1) gained 0.2 percent to hit a record high of 2,403.75 in early trade before giving up the gains to trade flat.

"Political risk in Europe has been considered as a major market theme this year. But in the Netherlands (anti-EU party leader Geert) Wilders lost in March. The French election is now out of the way," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley (NYSE:MS) Securities.

"And in Germany the ruling Christian Democrats are recovering. The political risks in Europe have receded," he said.

Chancellor Angela Merkel's conservatives won a decisive victory in a vote in Germany's northern state of Schleswig-Holstein on Sunday, boosting her prospects of winning a national election in September.

FULL EMPLOYMENT IN U.S.

Stock markets had a welcome surprise on Friday from solid U.S. employment numbers. Nonfarm payrolls surged by 211,000 last month after a paltry gain of 79,000 in March, and the unemployment rate dropped to 4.4 percent, near a 10-year low and well below the most recent Federal Reserve median forecast for full employment.

The hiring rebound supports the U.S. central bank's contention that the pedestrian 0.7 percent annualized economic growth in the first quarter was likely "transitory," and its optimism that economic activity would expand at a "moderate" pace.

The 10-year Treasury yield (US10YT=RR) ticked up to 2.360 percent. And Fed fund rate futures are pricing in almost a full chance of a Fed rate hike in June.

Chinese exports and imports both missed economists' expectations in April but the markets took it in stride.

The data did little to change the perception that China's growth is likely to slow after expanding 6.9 percent in January-March as authorities step up their battle to cool the property sector and curb debt risks.

Shanghai shares (SSEC) dropped 0.8 percent, hitting their lowest levels since January on regulation worries.

Crude oil prices extended their rebound from Friday's five-month lows, as investors bet key producers could extend output cuts beyond an agreed June cut-off.

Saudi Arabia's OPEC governor said on Friday there was an emerging consensus among member and non-member countries on the need to extend the output-control agreement beyond June to help clear the supply glut.

Brent futures traded at $49.76 per barrel (LCOc1), up 66 cents or 1.3 percent.

Gold prices move higher on weaker dollar

Gold prices moved higher on Friday, as the U.S. dollar weakened broadly, although the Federal Reserve’s hawkish stance this week was expected to limit the precious metal’s gains.

On the Comex division of the New York Mercantile Exchange, gold futures for June delivery were up 0.42% at $1,233.72.

The June contract ended Thursday’s session 1.59% lower at $1,228.60 an ounce.

Futures were likely to find support at $1,225.70, Thursday’s low and resistance at $1,257.80, Wednesday’s high.

Gold prices had tumbled after the Federal Reserve left interest rates unchanged on Wednesday, as expected, and gave a positive assessment of the U.S. economy, suggesting it was still on track for two more rate hikes this year.

The Fed said it expects the economy to rebound after hitting a soft patch in the first three months of the year, noting that the labor market looks solid and inflation is running close to its target, setting the stage for a rate hike next month.

But the precious metal benefited from a drop in the U.S. dollar on Thursday.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was steady at 98.62 on Friday morning, close to Thursday’s six-month trough of 98.56.

A weaker U.S. dollar usually supports gold, as it boosts the metal's appeal as an alternative asset and makes dollar-priced commodities cheaper for holders of other currencies.

Market participants were now looking ahead to the U.S. nonfarm payrolls report due later Friday, for further indications on the strength of the job market.

Data on Thursday painted a mixed picture of the U.S. economy, as initial jobless claims fell more than expected last week while factory orders eased in March.

Elsewhere in metals trading, silver futures for May delivery jumped 1.01% to $16.467 a troy ounce, while copper futures for May delivery was little changed at $2.513 a pound.

Forex - Dollar holds steady ahead of U.S. jobs report

The dollar held steady against other major currencies on Friday, as investors awaited the release of key U.S. employment data due later in the day and markets geared up for the second round of the French presidential election.

EUR/USD held steady at 1.0981, just off a six-month peak of 1.0990 hit overnight.

The single currency strengthened broadly after polls declared that Emmanuel Macron won a TV presidential debate against Marine Le Pen, increasing the likelihood of a Macron victory at the runoff vote on Sunday.

GBP/USD was little changed at 1.2920, not far from the previous session’s one-week high of 1.2970.

Meanwhile, sentiment on the greenback remained fragile following a mixed bag of U.S. economic data on Thursday, as initial jobless claims fell more than expected last week while factory orders eased in March.

Market participants were now looking ahead to the U.S. nonfarm payrolls report due later Friday, fir further indications on the strength of the job market.

USD/JPY fell 0.21% to trade at 112.23.

The Australian dollar moved lower, with AUD/USD down 0.42% ar 0.7377, while NZD/USDheld steady at 0.6866 after the Reserve Bank of New Zealand said inflation expectationsticked up to 2.2% in the second quarter from 1.9% in the three months to March.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was steady at 98.62, close to Thursday’s six-month trough of 98.56.

Oil eases, near weakest since late March on small U.S. stocks decline

Crude oil lost ground on Thursday, falling for a third out of four sessions and trading near its lowest since late March after data showed a lower than expected decline in U.S. inventories.

U.S. crude stockpiles fell less than expected last week, while gasoline inventories grew as demand remained weak, the Energy Information Administration said on Wednesday, keeping concerns about global supply on a simmer.

Crude inventories fell by 930,000 barrels in the week to April 28, much less than analysts’ expectations for a decrease of 2.3 million barrels. Crude stocks have steadily declined for the last four weeks, but at 527.8 million barrels they are still 3 percent higher from this time a year ago.

The benchmark Brent crude oil (LCOc1) fell 24 cents, or 0.5 percent, to $50.55 a barrel by 0635 GMT and U.S. West Texas Intermediate (WTI) crude (CLc1) lost 26 cents, or 0.5 percent, to $47.56 a barrel.

WTI hit its lowest since March 27 at $47.30 a barrel in the last session, while Brent crude on Tuesday slid to its lowest since late March at $50.14 a barrel.

While the market takes direction from U.S. inventories and rising production, investors are also monitoring whether producing countries have been complying with their 2016 deal to cut output around 1.8 million barrels per day (bpd) by the middle of the year.

“Crude remains mired near the bottom of its respective ranges,” said Jeffrey Halley, senior market analyst at futures brokerage OANDA in Singapore.

“The market will get increasingly nervous as we approach late May, about the details (or not) of an extension to the OPEC production cut agreement.”

The market is expecting OPEC and other producers to extend production cuts well into the second half of the year.

Russia, contributing the largest production cut outside OPEC, said as of May 1, it had cut output by more than 300,000 bpd since hitting peak production in October.

However the latest Reuters survey of OPEC production showed the country’s compliance had fallen slightly. OPEC meets on May 25 to discuss extending the agreement.

Iraqi fuel oil exports have soared since January despite a reduction in the country’s crude production in line with OPEC supply cuts, industry sources said, in what could be a way to boost output of refined products and maintain oil revenues.

Iraq on average exported between 80,000 and 160,000 tonnes of fuel oil per month in 2016, data collected by Thomson Reuters Oil Research showed.

Asian stocks retreat, dollar holds near six-week high on hawkish Fed

Asian stocks retreated on Thursday, taking their cues from a subdued session on Wall Street, while the dollar retained gains made after the Federal Reserve’s hawkish policy statement.

European markets looked more positive, with financial spreadbetters expecting Britain’s FTSE 100 (FTSE) and Germany’s DAX (GDAXI) to open 0.2 percent higher and France’s CAC 40 (FCHI) to start the day up 0.1 percent.

At the end of its two-day meeting, the Fed kept its benchmark interest rate steady, as expected, but downplayed weak first-quarter economic growth and emphasized the strength of the labor market, a sign it was still on track for two more rate increases this year.

Futures traders are now pricing in a 72 percent chance of a June rate hike, from 63 percent before the Fed’s statement, according to the CME Group’s FedWatch Tool.

The dollar stood at 112.765 yen , slightly higher than Wednesday and at its strongest level since March 20.

The dollar index (DXY), which tracks the greenback against a basket of trade-weighted peers, climbed 0.1 percent to 99.309, building on Wednesday’s 0.2 percent jump.

“The key over the coming weeks will be the economic data from the U.S. but, in addition, the (Fed) will be closely watching Washington and negotiations surrounding the new administration’s tax cut plans,” said Lee Ferridge, head of multi-asset strategy for North America at State Street Global Markets.

“Should the data hold up (or better still, improve from here), while the chances of a late summer tax cut agreement remain intact, then the market will likely price in a June move.”

Attention now turns to U.S. non-farm payrolls for March, due on Friday, after separate data showed private employers added 177,000 jobs in April. That was higher than expected but the smallest increase since October.

Economists polled by Reuters expect U.S. private payroll employment likely grew by 185,000 jobs in April, up from 89,000 in March.

MSCI’s broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) slid 0.4 percent on Thursday, dragged lower by commodities, energy and financials stocks.

Japan is closed for the Golden Week holiday.

Chinese stocks (CSI300) pared earlier losses to trade flat, as gains in small-caps offset a cooling in China’s services sector growth to its slowest in almost a year in April as fears of slower economic growth dented business confidence.

Hong Kong’s Hang Seng (HSI) dropped 0.4 percent.

Australian shares (AXJO) were also 0.4 percent lower.

“May is a notoriously cruel month for Asia with foreign exchange, equities and domestic bonds all losing in historical average returns,” Bank of America Merrill Lynch (NYSE:BAC) strategists led by Claudio Piron wrote in a note.

South Korea’s KOSPI (KS11) bucked the weaker trend, jumping 0.7 percent and hovering just a touch below an all-time high hit earlier in the session on strong corporate earnings.

Rising exports point to continued profit growth in the second quarter, with sentiment supported by hopes for economic stimulus from a new president.

Overnight, Wall Street closed flat to lower.

The Nasdaq (IXIC) fell 0.4 percent as Apple shares (NASDAQ:AAPL) slid after reporting lower than expected iPhone sales on Tuesday.

Facebook (O:FB) and Tesla (O:TSLA) also dropped during the session and after hours despite upbeat quarterly results, also weighed on the index.

Political concerns, which have taken a backseat recently, may re-emerge, with a U.S. House of Representatives vote on a revised bill to repeal Obamacare due later in the session after two failed attempts to corral enough support to pass the legislation.

House Majority Leader Kevin McCarthy said Republican leadership is confident there is enough backing for the bill to pass, after key moderate leaders met with President Donald Trump on Wednesday. Even if the bill passes the House, it could face an uphill battle in the Senate.

In Europe, Germany (GDAXI) ended higher but Britain (FTSE) and France (FCHI) closed lower on Wednesday. The pan-European STOXX 600 index (STOXX) lost 0.04 percent to slip from a 20-month high.

The euro <EUR=EBS> ticked up 0.1 percent to $1.08945 on Thursday, after losing 0.4 percent on Wednesday as the dollar strengthened on the Fed’s statement.

Following a debate between French far-right leader Marine Le Pen and centrist Emmanuel Macron, who will face off in the second round of the presidential election on Sunday, a poll showed some 63 percent of voters found market favorite Macron to be more convincing.

In commodities, oil prices slipped on Thursday after a smaller-than-expected decline in U.S. inventories last week.

U.S. crude (CLc1) pulled back 0.25 percent to $47.69 a barrel. On Wednesday, it touched its lowest level in over five weeks before closing higher.

Global benchmark Brent (LCOc1) fell 0.2 percent to $50.70.

Gold <XAU=> inched up 0.1 percent to $1,239.80 an ounce, making up some of Wednesday’s 1.5 percent loss.

Apple posts surprise dip in iPhone sales, shares fall

Apple Inc (O:AAPL) reported a surprise fall in iPhone sales for its second quarter on Tuesday, indicating that customers may have held back purchases in anticipation of the 10th-anniversary edition of the company's most important product later this year.

Under pressure from shareholders to hand over more of its $250 billion-plus hoard of cash and investments, Apple boosted its capital return program by $50 billion, increased its share repurchase authorization by $35 billion and raised its quarterly dividend by 10.5 percent.

Investors were unmoved, sending shares of the world's most valuable listed company down 1.9 percent at $144.65 in after-hours trading.

Apple sold 50.76 million iPhones in its fiscal second quarter ended April 1, down from 51.19 million a year earlier.

Analysts on average had estimated iPhone sales of 52.27 million, according to financial data and analytics firm FactSet.

Apple Chief Financial Officer Luca Maestri argued the decline was not as bad as it looked, given the peculiarities of how phone sales are calculated.

The company reports what are called "sell-in" figures for the iPhone, a measure of how many units it sells to retailers, rather than "sell-through" figures, which measure how many phones are actually sold to consumers.

Maestri said the company reduced the volume of inventory going through its retail channel by about 1.2 million units in the quarter, meaning the company sold about 52 million phones to customers on a sell-through basis.

Despite the dip in unit sales, iPhone revenues rose 1.2 percent in the quarter, helped by a higher average selling price.

10TH ANNIVERSARY

Expectations are building ahead of Apple's 10th-anniversary iPhone range this fall, with investors hoping that the launch would help bolster sales.

Apple typically launches its new iPhones in September.

A big jump in sales usually follows in the holiday quarter, before demand tapers over the next few quarters as customers hold back ahead of the next launch.

Apple's 10th-anniversary iPhone range might sport features such as wireless charging, 3-D facial recognition and a curved display.

"There is a general softening in phone demand to contend with as well as expectations of a big upgrade, all of which softens the blow of this quarter's miss," said James McQuivey, a Forrester Research analyst. "If we see Apple downplaying expectations before the next upgrade cycle, it might mean that the company isn't confident it will beat those expectations."

The company forecast total revenue of between $43.5 billion and $45.5 billion for the current quarter, while analysts on average were expecting $45.60 billion, according to Thomson Reuters I/B/E/S.

Analysts on average expect the company to sell 42.31 million iPhones in the current quarter, according to FactSet.

For the second quarter, the company's net income rose to $11.03 billion, or $2.10 per share, compared with $10.52 billion, or $1.90 per share, a year earlier.

Analysts on average had expected $2.02 per share, according to Thomson Reuters I/B/E/S.

Revenue rose 4.6 percent to $52.90 billion in the quarter, compared with analysts' average estimate of $53.02 billion.

A 17.5 percent jump in the company's services business - which includes the App Store, Apple Music, Apple Pay and iCloud - to $7.04 billion, boosted revenue.

"We are particularly encouraged by the fact that service revenue is nowhere near as cyclical as product revenue," Neil Saunders, Managing Director of GlobalData Retail, wrote in a note to clients.

Apple's revenue from the Greater China region fell 14.1 percent to $10.73 billion in the quarter, as cheaper rivals in the region chipped away at sales.

Maestri said that sales of Macs and the company's services were strong in China during the March quarter. “The performance we’re seeing in China should get better going forward this year,” he said.

Apple's gross margin hit 38.9 percent, slightly ahead of analysts' average expectation of 38.7 percent, despite higher prices for memory chips. The company said it expects gross margins next quarter between 37.5 percent and 38.5 percent, versus analysts' expectation of 38.3 percent, according to FactSet.

“NAND and DRAM (memory chips) are under pressure right now in terms of some price pressure. We saw that in the March quarter and expect that to continue into the June quarter, but for all the other commodities, we see prices declining,” Maestri said.