Stocks hit fresh high as ECB lifts euro
london — World stocks scaled fresh peaks on Friday while the euro hit a three-year high and Bund yields rose as progress on forming a German government gave fresh impetus to a bond market sell-off triggered by signs the ECB may accelerate an end to its stimulus.
MSCI’s broadest gauge of the world’s stock markets hit yet another record high and was on track to rise for its eighth of the nine business days so far this year — for a total increase of 3.5 per cent.
US stocks were set to open higher as well, likely hitting new records once again having made a rapid recovery from Wednesday’s losses. Dow Jones, S&P 500 and Nasdaq futures were up 0.1 to 0.4 per cent.
“This bull market is highly related to the fact we are facing good growth, low inflation and soft monetary policy normalisation. If any of those were to be shaken that would be a big problem,” said Jeanne Asseraf Bitton, head of cross-asset research at Lyxor Asset Management.
Germany’s 10-year Bund yield hit a fresh five-month high of 0.54 per cent after Chancellor Angela Merkel’s conservatives and the Social Democrats agreed a blueprint for formal coalition negotiations, news that also buoyed the euro.
Germany’s DAX gained 0.3 per cent on the news and European stocks took their cue from a recovery in Asian trading, but gains were more muted than the stellar start to the week as a surging euro weighed on European exporters.
MSCI’s index of European stocks rose 0.2 per cent as the euro hit its highest in three years at $1.2128 and last traded up 0.8 per cent at $1.2126. The euro’s overnight index swap rates have risen sharply this week as traders priced in a higher chance of a rate hike early next year.
While the currency’s rise has reflected growing optimism over the bloc’s economic recovery, investors have flagged it as a potential brake on stocks. Monica Defend, head of strategy at Amundi Asset Management, said the currency, for which she has a target of $1.22, was the biggest risk to European equities.
A sell-off in European bonds gathered pace, with yields driven higher by minutes on Thursday of the ECB’s December meeting that showed it thinks it should revisit its communication stance in early 2018.
The end of a turbulent week for bond markets also saw US Treasury yields extending Thursday’s pullback after China disputed a media report that government officials had recommended it slow or halt its purchases of US bonds.
The 10-year Treasury yield stood at 2.5425 per cent, settling down further from Wednesday’s 10-month high of 2.597 per cent when fears of a bond bear market gripped investors. —