New Year, new high for euro zone stock
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[January 02, 2017]
By Jemima Kelly
LONDON (Reuters) - Euro zone stocks climbed
to their highest in over a year on Monday - the first trading day of
2017 for those markets that were open - after data showed manufacturers
in the currency bloc ramped up activity at the fastest pace in over five
With all of Asia's major markets closed for the New Year holiday - along
with Britain and Switzerland in Europe - trade was thin, which analysts
said could cause some volatility. The United States and Canada will also
The euro zone's blue-chip Euro STOXX 50 index rose half a percent to its
highest since December 2015 after the purchasing managers' index (PMI)
for factories in the currency bloc came in at 54.9 - well above the 50
mark that separates growth from contraction.
The euro, though, took no comfort from the figures, slipping 0.3 percent
back below $1.05 after climbing to as high as $1.07 during a flash surge
in low trading volumes in Asia on Friday.
Analysts said that was mainly due to a resumption of an up-trend in the
greenback that saw it surge to 14-year highs in December on the view the
U.S. Federal Reserve will hike rates as many as three times this year,
and that Donald Trump's administration will stoke growth and inflation
with a program of fiscal expansion.
The dollar index - which measures the greenback against six major rivals
- climbed 0.4 percent.
"In the last days of 2016 we saw the dollar retreat somewhat, and there
might be some sense of a correction from Europe this morning. I don't
see any fundamental drivers for the moves," said Commerzbank currency
strategist Esther Reichelt, in Frankfurt.
Italy's top share index hit its highest level since January last year,
outperforming other major European stock indexes, with a rally in its
banks and a strong manufacturing report improving sentiment.
Italy's FTSE MIB index was up 1.3 percent by 1000 GMT after rising to
its highest since January 15 of 2016. Germany's DAX was up 0.9 percent
at its highest in nearly 17 months, while France's CAC was up 0.3
percent after hitting a 13-month peak earlier in the day.
As European stocks climbed, a rally in risk appetite also pushed down
the yields on lower-rated government bonds in the euro zone to
multi-week lows. Italian, Spanish and Portuguese 10-year bond yields
were down roughly 8 basis points each on the day.
A gun attack in Istanbul that killed 39 people was seen having little
impact on markets, with the Japanese yen - traditionally used as a safe
haven - falling 0.3 against the dollar, close to an 11-month low.
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Traders work at their desks in front of the German share price
index, DAX board, at the stock exchange in Frankfurt, Germany,
December 30, 2016. REUTERS/Staff/Remote
Islamic State claimed responsibility on Monday for the New Year's
Day mass shooting, which was carried out by a lone gunman in a
packed nightclub in the Turkish city.
"After all the big political shocks last year and muted market
reaction, it is tempting to argue that the markets are very
resilient," said Finland-based Nordea chief market strategist Jan
"I would say this is too optimistic an assumption and I think we
will see more volatility this year."
The Turkish lira slipped 0.4 percent after the attack to 3.5384 per
dollar, close to a record low of 3.5840 lira touched in December.
"The problem is that this once again stresses the increasing
instability and the security issues, and we’re seeing tourist
numbers going down, which will have a lasting negative impact on the
Turkish economy...and that’s Turkish lira-negative," said
Data released earlier in the day showed China's manufacturing sector
expanded for a fifth month in December, though growth slowed a touch
more than expected in a sign that government measures to rein in
soaring asset prices are starting to have a knock-on effect on the
The Chinese yuan suffered its biggest annual loss in more than 20
years in 2016, with an almost 7 percent fall making it the
worst-performing currency in Asia.
Digital currency bitcoin started the year by jumping above $1,000
for the first time since late 2013.
(Additional reporting by Dhara Ranasinghe and Atul Prakash in
London; Editing by Peter Graff)
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