Euro feels Euro­pean Cen­tral Bank pres­sure

The Pak Banker - - COMPANIES/BOSS -

The euro hit its low­est in al­most three years against the yen and Europe's shares ex­tended their best run of the year on Tues­day, as data from the re­gion's big economies bol­stered the case for an­other strong dose of ECB stim­u­lus next week.

Euro zone man­u­fac­tur­ing ac­tiv­ity ex­panded at its weak­est pace for a year last month as deep price dis­count­ing failed to put a floor un­der slow­ing or­der growth. Markit's Pur­chas­ing Man­agers' In­dex (PMI) will make gloomy read­ing for the Euro­pean Cen­tral Bank, com­ing lit­tle more than a week be­fore its next pol­icy set­ting meet­ing where it is ex­pected to in­crease its sup­port pro­gramme.

Bri­tain's FTSE 100 .FTSE climbed 0.6 per­cent, Ger­many's DAX .GDAXI jumped 1.3 per­cent and France's CAC 40 .FCHI rose 0.4 per­cent af­ter Asian mar­kets had also risen af­ter weak Chi­nese man­u­fac­tur­ing and ser­vice sur­veys fanned stim­u­lus hopes there. The yen eased back in early Euro­pean trad­ing but was still hot to the touch hav­ing com­pleted its best month against the dol­lar JPY= since 2008 and reached its high­est against the euro EURJPY= since April 2013. That was de­spite Ja­pan be­com­ing the first ma­jor G7 econ­omy to sell 10-year govern­ment bonds at a neg­a­tive yield, some­thing that would usu­ally make the cur­rency less at­trac­tive as in­vestors ef­fec­tively pay rather than get paid to hold them. "The yen strength right now is largely be­ing dom­i­nated by (weak) risk ap­petite," said Uni­Credit's Global Head of FX Strat­egy Vasileios Gkion­akis.

On the euro he added: "There is no doubt the low in­fla­tion and the soft eco­nomic data is keep­ing the pres­sure on the ECB to do some­thing next week." There was a glim­mer of hope for the cen­tral bankers though as Brent oil prices LCOc1, the big down­ward force on in­fla­tion for the last two years, hit their high­est level since the start of the year hav­ing just seen their best month since Au­gust. It helped Ger­man Bund yields nudge off 10-month lows af­ter the pre­vi­ous day's deeper than ex­pected fall in euro zone con­sumer prices had seen the bloc's in­fla­tion ex­pec­ta­tions EUIL5YF5Y=R fall to their low­est on record. The Euro­pean Cen­tral Bank is ex­pected to cut its de­posit rate by at least an­other 10 ba­sis points next week ECBWATCH and add to its 1.5 tril­lion euro bond buy­ing scheme.

Later in the day, US man­u­fac­tur­ing and ser­vices sec­tor data will feed the con­stantly evolv­ing view of whether the Fed­eral Re­serve can con­tinue to squeeze up in­ter­est rates in the world's largest econ­omy this year. In Asia overnight, MSCI's broad­est in­dex of Asia-Pa­cific shares out­side Ja­pan .MIAPJ0000PUS ended up 1.3 per­cent, as Chi­nese stocks .CSI300 climbed 1.8 per­cent af­ter Mon­day's eas­ing move from the PBOC as it cut banks' re­serve re­quire­ments.

There was a wide­spread feel­ing more stim­u­lus is likely. Of­fi­cial data on Tues­day showed ac­tiv­ity in the coun­try's gi­ant man­u­fac­tur­ing sec­tor shrank for a sev­enth straight month in Fe­bru­ary and faster than ex­pected. The ser­vices sec­tor did ex­pand al­though it was at the slow­est pace since late 2008 and the pri­vate Caixin/Markit China Man­u­fac­tur­ing Pur­chas­ing Man­agers' In­dex came in short of both mar­ket ex­pec­ta­tions and the pre­vi­ous month's read­ing. "We think the PBOC eas­ing is con­sis­tent with con­tin­ued weaker-than-ex­pected eco­nomic ac­tiv­ity and down­side risks to growth," wrote Jian Chang, an an­a­lyst at Bar­clays. "It should help to sup­port mar­ket sen­ti­ment in the near term." Ja­pan's Nikkei .N225 erased losses and ended up 0.4 per­cent al­though the yen's hot streak con­tin­ued to drag back a mar­ket that has slumped 15 per­cent this year.

Against the per­ceived safe-haven yen, the com­mon cur­rency clawed back some ter­ri­tory and rose 0.2 per­cent to 122.73 EURJPY=R, af­ter ear­lier drop­ping as low as 122.085, which was its low­est level since April 2013.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.