European stocks and the euro made tentative gains yesterday as a drop in bond market stress levels helped sentiment ahead of a read out from the European Central Bank’s latest meeting.
A sharp sell-off in bonds over the last week has been pushing up global borrowing costs, meaning there is more focus than ever on when the ECB ends its €2.55 trillion, three-year stimulus programme. For now it is keeping things steady, the ECB confirmed.
European equities were up 0.4 per cent as MSCI’s most widely-followed gauge of world stocks pulled out of its longest losing streak of the year so far.
This happened as 10-year US bond yields drifted back below the psychologically significant 3 per cent mark and Wall Street futures pointed fractionally higher with another heavy dump of first quarter earnings coming up from companies such as Amazon, Microsoft and Intel.
Asia also rose overnight as record quarterly profits from Samsung helped offset nerves in China after reports that US prosecutors have been investigating whether Chinese tech giant Huawei violated Iran sanctions.
Oil was back on the rise, feeding what are likely to be questions for the ECB on rising inflation and supported by expectations of renewed US sanctions on Iran and declining output in crisis-hit Venezuela.
The US Dow Jones bluechip index had snapped a five-day losing streak on Wednesday, thanks to strong corporate earnings. The Nasdaq was expected to benefit yesterday after forecast-beating after-market results from data-scandal hit Facebook.
Europe’s rises dragged it of one-week lows, though a mixed set of earnings weighed, including a 79 per cent drop in profit at Deutsche Bank. The reaction from its new chief executive, Christian Sewing, was to order cut backs in bond and equities trading in its long-troubled investment bank.
At the day’s main event, the ECB kept its policy unchanged as was widely expected.
An 11 per cent oil price rise this year, on top of last year’s 18 per cent jump, is increasing inflation levels and some of the bank’s top policymakers have said they expect the recent soft patch in euro zone economic data to pass.
Meanwhile, a breather for the dollar helped emerging market currencies regain some ground having been almost universally whacked by the combined yield and dollar rise over the last week.
Yields on 10-year US Treasuries, the reference rate for global borrowing, have risen around 25 basis points since early-April and are now hovering at four-year highs.
That has led companies such as Alphabet to warn of surging costs while heavy equipment maker, Caterpillar said its buoyant first-quarter earnings could be the “high water mark”.
While 81.2 per cent of US earnings have beaten consensus estimates and Thomson Reuters data projects first-quarter earnings growth at 22 per cent, investors fear similar warnings from other companies.