ECB easing lifts shares and bonds, but euro tumbles

A man walks past electronic boards showing graph of recent fluctuations of Japan's Nikkei average and Japanese yen's exchange rate against U.S. dollar outside brokerage in TokyoThe European Central Bank’s plan to pump out about 1 trillion euros to revive the euro zone economy put stocks in the region on track for their best week since 2011 but hammered the shared currency.

The appetite for riskier appetites was intense with traders also driving Italian, Spanish and many other euro zone bond yields to new record lows and snapping up emerging market stocks to put them on track for their biggest gain in 10 months. Oil prices rose on hopes for a boost to global growth from the ECB’s landmark move, while the death of Saudi Arabia’s King Abdullah added to uncertainty over the plans of the world’s biggest crude exporter.

“What the market is focusing on is the potentially open- ended element of the (ECB QE) programme,” said Emile Cardon, the euro zone strategist at Rabobank. “And what we also see this morning is that euro zone data has been slightly better than expected.” There were nerves about cliffhanger elections in Greece on Sunday that polls suggest will be won by the anti-EU/IMF bailout Syriza party. But the ECB’s pledge to buy roughly 50 billion euros of government bonds a month from March until September 2016 more than compensated.

Greek shares led Europe’s bourses with a 6 percent jump, as London’s FTSE, Germany’s Dax and Paris’s CAC 40 saw gains of 2.2 to 2.3 percent. Wall Street, in contrast, was expected to open virtually flat as traders become increasingly concerned about the impact on firms there of an ever stronger dollar. It was underscored as the euro went into another nosedive. It crashed down through $1.13, $1.12 and all the way to $1.1115 in a matter of hours, in its biggest daily fall in over three years. [FRX/]

“I don’t think any central bank would be happy with such extreme moves, particularly in a major currency pair,” said Derek Halpenny and Bank of Tokyo Mitsubishi. “We are in a period of severe stress in terms of position liquidation. Where this stops, it is impossible to tell.”

The euro’s plunge came despite new data showing the bloc’s 19-country economy began 2015 in better shape than expected, although companies slashed prices. Markit’s flash composite purchasing manager survey bounced to a five-month high and beat forecasts. “We are moving away from the lows seen towards the end of last year but the actual rate of growth being signaled is still moderate,” said Rob Dobson, Markit’s senior economist. Wall Street, which has being losing its advantage over European markets in recent weeks, was expected to open little changed later amid another deluge of earnings. General Electric nudged up in pre-trading after its turbines and jet engines division boosted its earnings. Starbucks also rose after the coffee chain’s Americas region did better than expected. [.N]

Asia markets also rallied overnight. MSCI’s broadest index of Asia-Pacific shares outside Japan rose to an eight-week high. Japan’s Nikkei gained 1 percent, Australia and South Korea made sizeable gains, and Indonesia’s stock market scored a record high. One reason was signs of stabilization in commodity markets after their battering in the second half of last year. Crude oil prices rose after Saudi Arabia – the world’s biggest oil exporter – announced the death of King Abdullah. US crude gained 50 cents to $46.80 a barrel and Brent climbed to $49.27, although both were still heading for weekly losses. Safe-haven and inflation-hedge Gold was near a five-month high. [GOL/]

The dollar was up 0.1 percent at 118.10 yen, on track for a 0.8 percent gain on the week while the euro’s capitulation put the dollar basket on track for its biggest gain since 2011. Market reaction to an HSBC flash China PMI was limited. It showed manufacturing growth stalling for a second straight month in January and deflationary pressures mounting. That could reinforce bets Beijing will roll out more stimulus measures.

The Australian dollar, whose commodity and trade links make it sensitive to Chinese data, fell to a 5 1/2-year low of $0.7980. After fellow commodity country Canada cut rates this week, many think Australia could be next.

Sources: QGN, NBC, Reuters, Caye Global News.