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 European shares and bonds kept climbing on Friday after soaring on
Thursday's message from ECB chief Mario Draghi that the central bank
was ready to adjust "the size, composition and duration" of its QE
program.
It was set to be the fourth straight week of gains for MSCI's
45-country All World index as the euro's nose dive back to $1.11 put
the dollar on course for its biggest weekly rise against the major
currencies since late May.
For investors hoping for a positive jolt to the lackluster global
economic growth outlook, it was shaping up to be the second straight
week of near 4 percent falls in oil prices , which were edging
higher on Friday.
"Draghi has come out and kitchen-sinked the whole thing, everything
is now on the table," said Gavin Friend, a strategist at National
Australia Bank in London.
"You combine what the ECB is now saying with (the fact) that the Fed
is not going to be going aggressively and that the Bank of Japan is
going to want to get involved, then you say 'Blimey!'"
The pan-European FTSEurofirst 300 index rose 1 percent,
building on a 2.1 percent gain in the previous session, while the
euro zone's blue-chip Euro STOXX 50 index advanced by 1.2 percent.
Bond market moves were perhaps the most eye-catching though. Italian
and Spanish two-year government bond yields both turned negative for
the first time ever, meaning that investors now pay to hold them
rather than receive interest on them.
Greece's bond 'curve' was also close to normalizing, having been
distorted for months in the wake of a political crisis.
Investors were spurred on by the prospect not only of the ECB
increasing its bond buying but also of it cutting one of its main
interest rates, the deposit rate, even further into negative
territory.
BIG WEEK AHEAD
Asian markets also roared their approval at Draghi's bold moves
overnight.
MSCI's broadest index of Asia-Pacific shares outside Japan was
up 1.7 percent, and Japan's Nikkei closed 2.1 percent higher to end
the week up almost 3 percent. The Bank of Japan holds a meeting next
week and markets are betting on more hints of additional stimulus
there too.
The Shanghai Composite index added 1.4 percent. Next week will also
be a major one for Chinese markets with its government set to meet
on its next five-year economic plan.
"Investors and traders are buying the idea of expected action out of
the Bank of Japan and the ECB," said Ben Le Brun, market analyst at
trading platform provider optionsXpress.
The euro saw another wobbly start having seen its largest one-day
percentage drop against the dollar in nine months on Thursday.
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The common currency was last at $1.1108, after earlier falling to a
two-month nadir of $1.1072. As a result the dollar was just off a
two-month high, with it also down slightly on the day against the
yen at 120.34 yen.
The Federal Reserve will meet next Tuesday and Wednesday. Its
policymakers opted to hold interest rates steady last month, amid
concerns that a slowing global economy, particularly in China, could
pose risks to the U.S. economic outlook.
The Chinese central bank's injection of 105.5 billion yuan into 11
banks via its medium-term lending facility this week, combined with
possible additional stimulus from the ECB, "may give the Fed more
reason to raise rates by year end," said Chris Brankin, chief
executive officer of online trading platform TR Ameritrade Asia in
Singapore.
But another disappointing U.S. job report next month after October's
weaker-than-expected growth "might be cause for further pause," he
said.
Crude oil prices edged up, taking heart from the improved risk
sentiment but still pressured by concern about high U.S. crude
inventories and the stronger dollar.
Brent climbed 0.7 percent to $48.42 a barrel, but was on track for a
weekly loss of almost 4 percent. U.S. crude added 0.4 percent to
$45.60 but was down 3.7 percent for the week.
The stronger greenback also weighed on spot gold prices. It
was last trading at $1,168.65 an ounce after touching a nine-day low
of $1,162.50 overnight, and was down 0.7 percent for the week.
(Additional reporting by Lisa Twaronite and Nichola Saminather in
Tokyo and Singapore; Editing by Hugh Lawson)
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