The euro slipped back towards seven-month lows, bond yields fell and European shares rallied yesterday as talk of aggressive stimulus from the European Central Bank next week gained ground.
The pan-European FTSEurofirst 300 index rose 0.8 per cent, adding to Wednesday’s 1.4 per cent gain, while the Euro STOXX 50 index was up 1.2 per cent.
The firm gains came as Wall Street shares closed flat overnight in a pre-Thanksgiving holiday lull and Asian stocks closed modestly higher. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.5 per cent.
Eurozone central bank officials are considering options such as staggered charges on banks hoarding cash and buying more debt ahead of next week’s ECB meeting, Reuters reported on Wednesday.
That fuelled talk that the central bank is getting ready for aggressive measures to lift inflation and economic growth in the 19-member eurozone.
Against this backdrop, the euro remained on the back foot, dipping 0.15 per cent to $1.0626. It tumbled on Wednesday to $1.0565, its lowest level since mid-April, before recovering. Against the yen, the euro fell 0.2 per cent to 130.12 yen, having hit a seven-month low of 129.77 on Wednesday.
Overall market activity was thin due to the holiday in the United States.
Eurozone lending expanded at its fastest rate in nearly four years in October while a broader measure of money circulating grew well ahead of expectations, data from the ECB showed on Thursday.
Still, banks continue to park around €160 billion in overnight deposits with the ECB, indicating that even negative rates and extraordinary monetary stimulus has not unblocked the lending channel.
Short-term eurozone interest rates fell to record lows as markets interpreted an ECB debate about two-tier deposit rates as signalling the intention for an aggressive cut.
ECB easing expectations also pushed German five-year government bond yields to a new record low of -0.196 per cent, while two-year yields hovered just above lows of –0.418 per cent.
Expectations for a divergence in monetary policy meanwhile rose after US economic data on Wednesday cemented expectations that US interest rates will rise soon, helping push the gap between short-dated bond yields in the US and Germany to their widest since 2006 and underpinning the dollar.
Oil prices fell, after six days of gains, as concerns that escalating violence in the Middle East would disrupt supply faded, and the focus returned to a persistent market glut.
Brent crude oil futures were down 0.9 per cent at $45.75 a barrel.
Spot gold was little changed at $1,071.65 an ounce, hovering close to its lowest in nearly six years on the back of a firmer dollar and expectations for higher US interest rates.
Copper prices bounced to their highest in nearly two weeks, helped by funds starting to reverse some of their bets on lower prices. The metal has been hit hard in recent weeks bydollar strength.
Elsewhere, Turkish assets remained under pressure as a dispute with Russia over its downed jet rumbled on, but other emerging equities edged up, snapping a three-day losing streak.