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Stocks Hit, Euro Shines After ECB Disappoints

Stocks Hit, Euro Shines After ECB DisappointsStocks Hit, Euro Shines After ECB Disappoints

Asian shares slipped while the euro retained lavish gains on Friday, a day after its biggest one-day surge in nearly seven years as the European Central Bank’s stimulus package fell well short of markets’ high expectations.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.2% while Japan’s Nikkei dropped 1.5%, Reuters reported.

On Thursday, Wall Street’s benchmark S&P 500 stock index had its biggest one-day percentage decline since Sept. 28, dropping 1.4%. The pan-European stock index of FTSEurofirst 300 shed 3.3%, the biggest fall since Aug. 24.

The drama started after the ECB cut its deposit rate deeper into negative territory and extended its asset buying by six months.

Its rate cut of 0.10 percentage point, to -0.30%, was smaller than a 0.15 to 0.20 percentage point cut many traders expected.

The central bank did not increase the amount of government bonds it buys while the six-month extension of the program was perceived as bare minimum, given traders looked for an extension of one year or even making it an open-ended plan.

The package sent traders scrambling to unwind short euro positions which they had built since late October when the ECB chief Mario Draghi said there would be another round of stimulus measures.

The euro jumped 3.1% on Thursday, posting its biggest single-day gain since March 2009. The common currency last traded at $1.09, down 0.2% from late US levels but still near its one-month high of $1.09 hit on Thursday. That took the dollar’s index against a basket of six major currencies down to a one-month low of 97.59.

The euro’s rebound also helped to lift other currencies against the dollar, with European currencies outperforming.

The British pound rose 1.2% to $1.51 while the Swiss franc gained 2.4% against the dollar to 0.99 franc to the dollar. The yen gained 0.6% to 122.65 per dollar.

Global bond yields shot up, with the 10-year US notes yield rising to as high as 2.34% from 2.17.

The yield on 10-year German Bunds jumped about 20 basis points to 0.66% from 0.47% on Wednesday, the biggest jump since late April.

Investors are now focused on US jobs data, which is likely to cement expectations that the Federal Reserve will hike interest rates later this month, barring surprisingly weak readings.

Meanwhile, Brent crude futures rose to $43.84 per barrel, having bounced back from Wednesday’s three-month low of $42.43.

Precious metals also rebounded, with gold rising 0.8% on Thursday after hitting a near six-year low of $1,045.80 per ounce earlier in the day.

In early Friday trade, it last stood at $1,064.30, up slightly on the day and is on course to post its first weekly gains in seven weeks.

 

Financialtribune.com