European stocks extend their gains
European equities and the euro rose yesterday, taking poor US jobs data in stride and extending the previous day’s rally on the European Central Bank unveiling a plan to aid troubled eurozone nations.
Frankfurt’s DAX 30 added 0.66 per cent to 7,214.5 points, a 2012 high point, while in London’s FTSE 100 index of top companies was 0.30 per cent higher at 5,812.26 points and in Paris the CAC 40 rose by 0.26 per cent to 3,519.05 points.
Milan surged by 2.09 per cent, but an early rally in Madrid largely lost steam with shares up 0.26 percent after Spain said it would avoid rushing into a bailout request under the new ECB programme.
In foreign exchange deals, the euro jumped to just above the $1.28 mark before retreating back to $1.2788 from $1.2629 on Thursday.
On Wall Street, US stocks wobbled in midday trade after the government’s August jobs report came in much weaker than expected, raising speculation about Federal Reserve action to spur the sluggish economy.
The Dow Jones Industrial Average edged down 0.05 per cent, the S&P 500-stock index gained 0.28 per cent, while the tech-rich Nasdaq fell 0.04 per cent.
The US added 96,000 jobs last month, far short of the 130,000 forecast, and the July jobs number was revised lower by 22,000 to 141,000, the Labor Department said.
But the news did little to dampen sentiment in Europe a day after ECB chief Mario Draghi said that the central bank could buy unlimited amounts of debt from troubled nations like Spain and Italy in a bid to bring down borrowing costs and prevent the eurozone debt crisis spreading.
The news gave markets a huge shot in the arm, sending share prices soaring in Asia, Europe and on Wall Street. Asian stocks were also bolstered by Chinese plans for infrastructure investment.
“Draghi’s rally continues as the stocks are reaping the rewards of freshly-announced ECB stimulus efforts,” said trader Anita Paluch at Gekko Global Markets.
“Although it’s hard to call the programme a surprise as the outline has been known for a while, it has been received with great optimism.”
In reaction, Spanish borrowing costs fell below the 6 percent mark on Friday for the first time since May.
The yield – or rate of return – of Spain’s 10-year government bonds fell to 5.63 per cent at 1600 GMT on the secondary markets, down from 6.030 per cent at close on Thursday.
Italian rates also eased, reaching 5.058 per cent from 5.261 per cent a day ago.
Draghi said Thursday the ECB could buy unlimited amounts of debt from struggling nations in order to help them get back on their feet – in a scheme named “Outright Monetary Transactions”.
The OMTs “will enable us to address severe distortions in government bond markets which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro”, Draghi said.
“We will do whatever it takes” to keep the eurozone together, he said.
However, Draghi added that the purchases would depend on those countries asking for a bailout and agreeing to undertake economic reforms.
Asian markets also raced higher on Friday, with Hong Kong soaring 3.09 per cent, Seoul rising 2.57 per cent, Shanghai leaping 3.92 per cent and Tokyo surging 2.20 per cent.