Euro close to cracking on ECB talk, shares gain

Tags: News
The euro was close to cracking on Wednesday as feverish speculation of further policy stimulus in the euro zone drove bond yields to all time lows and gave a fillip to stocks globally.

The groundbreaking call by European Central Bank President Mario Draghi for more action on both the monetary and fiscal fronts has markets wagering that fresh steps could come as soon as next week when the central bank's governing council meets.

"The comments have raised expectations that the ECB could announce even more monetary policy stimulus over coming months," said Peter Dragicevich, a senior currency and rates strategist at Commonwealth Bank of Australia. "The next programme could include broad-based asset purchases."

He added that euro zone inflation data due on Friday was likely to show a new low for this cycle of just 0.3% and add to the sense of urgency on policy.

"This will continue to depress swap rates across the curve and keep the euro heavy."

The single currency broke down to a new 11-month trough of $1.3154 on Wednesday, taking it nearer to the Sept. 6 low of $1.3104 which also doubles as major chart support.

The euro's weakness helped lift the US dollar index through its September peak to reach its highest in 13 months at 82.698. The greenback could only manage a minor gain on the yen to 104.09, short of Monday's 7-month peak at 104.49.

The prospect of further liquidity injections in Europe was taken as long-term positive for emerging markets and MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.1%.

Japan's Nikkei gained 0.3%, while the Topix added 0.4% to challenge stiff resistance around previous peaks in the 1,290/1,300 zone.

On Wall Street the S&P 500 closed above the 2,000 mark for the first time, adding 0.11%. The Dow ended Tuesday up 0.17%, while the Nasdaq gained 0.29%.

EURO YIELDS NOSEDIVE

Investors were cheered by solid data with the Conference Board measure of consumer confidence rising to its highest level since October 2007.

Durable goods orders jumped a massive 22.6% thanks entirely to bumper demand for Boeing aircraft, while upward revisions to past data suggested business investment was stronger than first thought.

In Europe, the broad FTSEurofirst 300 index had closed up 0.75%.

Yields on 10-year German debt fell a basis point to a record closing low of 0.943%, while negative yields on two-year paper meant investors were paying for the pleasure of lending to Berlin.

The rally on the periphery has been even larger with 10-year yields down 8 basis points on Spanish bonds and 5 basis points on Italian paper. Spain already pays less than the United States to borrow and Italy is about to be granted that privilege.

Markets also kept a wary eye on developments in Ukraine after Russian President Vladimir Putin met Ukraine's Petro Poroshenko for two hours of one-on-one talks after six hours of wider negotiations with European Union officials.

Poroshenko said a "roadmap" would be prepared to agree to a ceasefire as soon as possible in east Ukraine, while Putin emphasised it was up to Kiev to work out conditions with separatist rebels.

In commodity markets, gold was back down at $1,280.60 an ounce after failing to sustain a bounce to $1,290.80.

Oil prices were steadier for the moment after their long decline. Brent crude inched up 7 cents to $102.57 a barrel, while US crude dipped 3 cents to $93.83 a barrel.

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