The Ifo business climate index fell in May to its lowest this year,
following data that showed growth in the first quarter in Germany
was its strongest in three years but gave a dimmer outlook for the
This raised expectations that the European Central Bank will ease
policy next month, pushing the euro down to a three-month low
against the dollar and breaking long-term technical support that had
held firm for almost nine months.
"The renewed fall in the Ifo in May suggests that the German
recovery may be slowing. We expect annual GDP growth of about 2
percent this year and next, which will not be strong enough to drive
a rapid recovery across the euro zone or to eradicate the threat of
deflation," said Jennifer McKeown, senior European economist at
The euro was down a fifth of 1 percent on the day at $1.3630, the
lowest in three months and crucially below technical support at the
200-day moving average of $1.3636.
The euro has flirted with that support three times this week but has
not closed below it. This could be the first day it has done so
since early September last year.
Sovereign credit ratings upgrades on Friday for Spain and Greece had
little impact on European markets as their respective economies have
been improving for some time.
Investors were also reluctant to take on too much risk ahead of
European election results and a presidential election in Ukraine
this weekend, and because British and U.S. markets are closed on
Monday, which will dry up market liquidity.
"In places like Italy and Greece we don't have properly elected
governments, they are just cobbled together, so this weekend's
results will play on people's minds," said Marc Ostwald, a
strategist at Monument Securities.
In early trading Friday, The FTSEuroFirst 300 index of leading
European shares was down 0.1 percent at 1365 points <.FTEU3>,
Germany's DAX <.GDAXI> was flat at 9719 points and Britain's FTSE
100 <.FTSE> was down 0.2 percent at 6807 points.
SENSE OF RELIEF
Earlier in Asia, MSCI's broadest index of Asia-Pacific shares
outside Japan <.MIAPJ0000PUS> was up 0.1 percent at 487.70 after
hitting a one-year high of 488.42.
Markets were only mildly distracted by news that Thailand's military
had seized power in a bloodless coup late on Thursday, pitching the
nation into a further period of uncertainty as the long drawn out
political crisis shows no signs of resolution.
[to top of second column]
The Nikkei <.N225> climbed 0.9 percent as the yen remained on the
back foot against the dollar. The Japanese index has gained about
2.7 percent so far this week and poised for its first weekly gain in
Over the course of the week, however, investors have broadly
regained appetite for risk and pared back bets they have held and
profited from over the course of recent weeks.
Investors felt a sense of relief getting through the week without
serious market ructions from the crisis in Ukraine, a military coup
in Thailand and central bank policy minutes from the U.S. Federal
Reserve and Bank of England.
Italian 10-year yields were last up around 17 basis points on the
week, bouncing from recent multi-year lows and on track for the
biggest weekly rise in a year.
U.S. Treasury debt yields slipped 1 basis point on the day to 2.54
percent but were still up almost 5 basis points on the week
following the recent slide to multi-month lows below 2.50 percent.
The dollar traded little changed at 101.77 yen, and has gained about
0.2 percent on the week. Though the rise is modest, it is still
poised to snap a four-week losing run versus the yen.
Nickel at the London Metal Exchange (LME) looked set to pocket a 3.5
percent weekly gain, building on the year's stellar advance after a
shutdown of Indonesian supply, while copper targeted a flat weekly
close following its push to two-month peaks. <MET/L>
(Reporting by Jamie McGeever, additional reporting by John Geddie in
London; Editing by Alison Williams)
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