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New York markets pre-open: Stocks shrug off G-7 trade friction; US yields rise

SNL Image

? U.S. withdraws from signing G-7 communique.

? Global shares rise as upcoming Trump-Kim summit, central bank decisions in focus.

? Oil falls sharply.

? Emerging market currencies under pressure.

Equity markets shrugged off global trade concerns after U.S. President Donald Trump withdrew his support for the G-7 communique over the weekend. The dollar strengthened against the yen and sterling as investors awaited a meeting between Trump and North Korean leader Kim Jong Un. U.S. yields rose ahead of key central bank decisions later in the week, with futures pointing to the S&P 500 opening broadly stable.

The Euro Stoxx 50 added nearly 0.50% and the FTSE 100 gained 0.85% just before 7 a.m. ET. German and French stock markets were also trading higher. Earlier in Asia, the Shanghai Composite fell 0.47% and Japan's Nikkei 225 closed 0.48% higher.

The U.S. withdrew from signing the G-7 communique after Canadian Prime Minister Justin Trudeau said a sunset clause in NAFTA was "not on the table," contradicting earlier remarks by Trump. Trudeau also reiterated Canada's intention to proceed with retaliatory tariffs against the U.S. on July 1.

In an apparent response on Twitter, Trump called Trudeau "dishonest and weak" and said the premier had made "false statements." The Canadian dollar dipped 0.50% against the dollar, to U.S.$1.30.

The euro gained 0.09% against the dollar as of 7:08 a.m. ET as the European Union gears up to strike back against U.S. tariffs on steel and aluminum in line with World Trade Organization rules.

Trump's withdrawal from signing the communique "has increased the risk of a real trade war in which the U.S. would respond to the retaliation by the EU, Canada and Mexico by further tariff increases for imports, with cars seeming the most likely target," said Raoul Leering, head of international trade analysis at ING Research. "Compared to the tariffs on steel and aluminum this would bring more serious damage to the EU economy."

Shares in Daimler AG fell 1.8% in Frankfurt. Renault SA slid 1.1% in Paris.

The yen dropped 0.45% as of 7:07 a.m. ET. Emerging market currencies were under pressure against the U.S. dollar, with the Turkish lira shedding 1.05%, the Mexican peso retreating 0.60% and the South African rand down 0.32%.

Sterling fell 0.40% against the dollar as U.K. manufacturing output saw the sharpest decline in more than five years in April and the trade deficit widened to £5.28 billion.

Benchmark 10-year U.S. Treasury yields gained nearly 3 basis points to 2.967% as of 7:06 a.m. ET, ahead of an expected 25-basis-point increase in the Federal Reserve benchmark rate June 13.

A rate hike will likely come "on the back of rebounding growth and rising inflation" disregarding market concerns over trade, according to ING.

Ten-year yields on Italian bonds shed 20 basis points to 2.912% after Italy Finance Minister Giovanni Tria ruled out leaving the euro, saying he would focus on structural reforms. The FTSE MIB rallied 2.18%.

Yields on the 10-year German Bund added 2 basis points to 0.473% as investors awaited the European Central Bank's June 14 meeting.

"We expect a confident yet cautious tone from the ECB, but continue to see an announcement on July only of a three-month [quantitative easing] extension, at €15bn/month," Société Générale said in a note.

"A confluence of event risks — 'tapering' ECB and trade tensions — means keep risk limits tight for now," TD Securities said.

Brent crude oil fell 1.09% to $75.63 per barrel on the ICE Futures Exchange. Gold slipped 0.25% to $1,299.40 an ounce.

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No U.S. economic indicators are scheduled for June 11.