Banks lead Europe shares higher, oil up be­fore Yellen

The Pak Banker - - MARKETS/SPORTS -

Euro­pean stocks rose on Wed­nes­day, ral­ly­ing af­ter losses in Asia, as con­cerns about the health of banks that have ham­mered shares glob­ally in re­cent days eased and oil prices re­cov­ered from Tues­day's steep falls.

The more up­beat tone took the shine off safer as­sets such as the Ja­panese yen and low-risk govern­ment debt, though gold pow­ered ahead for the eighth day in nine. In­vestors and traders were look­ing ahead to Con­gres­sional tes­ti­mony from Fed­eral Re­serve chair Janet Yellen for clues to the out­look for mon­e­tary pol­icy. Sharp falls in global stocks and weak U.S. eco­nomic data have led mar­kets to slash ex­pec­ta­tions for the pace and ex­tent of Fed in­ter­est rate rises to fol­low De­cem­ber's first hike in nearly a decade.

The pan-Euro­pean FTSEurofirst 300 in­dex .FTEU3 rose 1.5 per­cent, with in­vestors cheered by a Fi­nan­cial Times re­port that Deutsche Bank (DBKGn.DE) was con­sid­er­ing buy­ing back sev­eral bil­lion euros of its debt.

Ger­many's flag­ship len­der, whose shares have fallen al­most 40 per­cent this year, rose more than 7 per­cent. The STOXX Europe 600 banks in­dex .SX7P was up 3.5 per­cent. "The re­bound in Deutsche Bank is help­ing to re­as­sure some in­vestors who had been con­cerned about pos­si­ble con­ta­gion in the bank­ing sec­tor," said Fran­cois Savary, chief in­vest­ment of­fi­cer at Geneva-based Prime Part­ners. The FTSEurofirst in­dex has fallen for the last seven trad­ing days and on Tues­day hit its low­est since Septem­ber 2013.

The big banks' for­tunes are seen as closely linked with the global growth out­look, which is fal­ter­ing, while the adop­tion by sev­eral ma­jor cen­tral banks of neg­a­tive in­ter­est rates to help lift growth has hit their busi­ness.

Those con­cerns have spread across the globe and on Wed­nes­day helped drive Tokyo's Nikkei in­dex .N225 to its low­est since 2014. Mit­subishi UFJ Fi­nan­cial Group (8306.T) fell 7.1 per­cent.

MSCI's broad­est in­dex of Asia-Pa­cific shares out­side Ja­pan .MIAPJ0000PUS fell 0.3 per­cent. Aus­tralian stocks touched a 2 1/2-year trough and closed down 1.2 per­cent

Oil prices, which fell 8 per­cent on Tues­day, picked up af­ter Iran said it was open to co­op­er­a­tion with Saudi Ara­bia on cur­rent con­di­tions in the mar­ket. Brent crude LCOc1, the in­ter­na­tional bench­mark, rose 73 cents to $31.05 a bar­rel, though prices were ex­pected to stay volatile.

Ris­ing stocks dulled the ap­peal of per­ceived "safe-haven" as­sets, among which the yen has shone lately. The Ja­panese cur­rency, gained 0.5 per­cent against the dol­lar JPY= but was below a 15-month high hit on Tues­day. It last traded at 114.50 yen per dol­lar.

The euro was marginally firmer at $1.1295 EUR=. BNP Paribas cur­rency strate­gist Michael Sneyd, in Lon­don, said Fed chair Yellen's tes­ti­mony, due at 1330 GMT, was un­likely to pro­vide any kind of re­bound for the dol­lar. "It seems we're likely to re­main in this regime where the dol­lar con­tin­ues to lose ground against the euro and the yen." Ger­man 10-year govern­ment bond yields DE10YT=TWEB, an­other safe haven, edged up just 0.6 ba­sis points to 0.24 per­cent.

"The risk back­drop re­mains frag­ile ... how­ever, now that the oil price has sta­bilised, Bunds are trad­ing un­changed to slightly weaker," said Alexan­der Aldinger, se­nior an­a­lyst at Bay­erische Lan­des­bank.

Ten-year Ja­panese govern­ment bonds JP10YTN=JBTC closed in Tokyo yield­ing 0.005 per­cent, hav­ing hit a record low of -0.035 per­cent. The JGB yield went neg­a­tive on Tues­day, in the wake of the Bank of Ja­pan's in­tro­duc­tion of neg­a­tive pol­icy rates on Jan. 31.

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