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 The U.S. Federal Reserve's outlook for rising interest rates had
already illustrated the diverging path from other advanced
economies, pushing the dollar to a six-year high against the yen,
but it was underscored even more firmly in Europe as the ECB opened
its liquidity taps again.
Two-and-a-half years on from its last injection of long-term funding
that pushed a trillion euros into Europe's markets, banks this time
took a much more restrained 83 billion that was well below the 133
billion traders had been expecting.
The launch of the scheme is the central plank of the ECB's efforts
to coax reluctant banks to lend more and fire up the bloc's flagging
economy. Alongside a yet-to-be-detailed asset purchase program, it
hopes to hit the 1 trillion mark again.
Berenberg’s chief economist Holger Schmieding called it "a
disappointing result for the ECB," and said "the low takeup ... will
likely strengthen the voice of those who argue that, to really make
an impact, the ECB would have to buy major amounts of sovereign
bonds."
Some top ECB members have already hinted at bond buying and the euro
and German bond yields nudged down and European shares climbed as
bets on such a move gained traction.
With Scottish voters hitting the polls on what looked likely to be
an extremely close vote on independence it also relieved some of the
pressure on the FTSE in London.
France's CAC40 and the Dax in Germany jumped 0.7 and 1 percent
respectively.
While the ECB is reluctant to overstep rules that prevent it from
financing governments by buying sovereign debt, it could do so to
ensure inflation - currently just above zero in the euro zone - goes
back to near 2 percent.
Spanish, Italian and Portuguese stocks and bonds all extended
earlier gains and QE bets bubbled, while futures prices also pointed
to a solid 0.4 percent rise for the S&P 500 when Wall Street opens.
FED GONE
The Fed had maintained language on Wednesday suggesting that rate
hikes would not happen for a "considerable time," but it also
indicated its policymakers think it could raise borrowing costs
faster than expected when it starts moving. [TOP/CEN]
The upshot was that the euro <EUR=> skidded to a 14-month trough
before stabilizing in Europe, while gold <XAU=> hit an eight-month
low as the dollar swept higher across the board, a move many
investors have been itching to wager on all year.
"The Fed clearly signaled overnight that although it is not
imminent, they are increasingly confident they will start raising
rates next year," said Lee Hardman, a strategist with Bank of
Tokyo-Mitsubishi UFJ in London.
Asia's reception had been mixed, with MSCI's index of ex-Japan Asian
shares falling to 12-week lows, on the specter of rising U.S. rates
and slower economic growth in China, though a weak yen saw Japanese
shares jump.
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The dollar spent European trading almost 1.4 percent higher against
the yen than 24 hours earlier, at 108.67 yen.
Futures markets still lean more towards a Fed rate move in June. But
whatever the timing, U.S. rates do seem certain to be heading higher
while central banks in the euro zone and Japan remain committed to
super-easy monetary policy.
Bond investors reacted with more calm than those in currency
markets, and nudged yields on the benchmark U.S. 10-year note up a
modest 2 basis points to 2.62 percent.
Still, a rise in two-year yields to 0.57 percent widened their
premium over German debt to 63 basis points, the fattest margin
since early 2007.
SCOTS AWAY?
With the Fed out of the way, the next big test for markets will be
Thursday's referendum on Scottish independence.
Five surveys - from pollsters YouGov, Panelbase, Survation, Opinium
and ICM - showed support for independence at 48 percent, compared
with 52 percent for maintaining the union. It gave sterling a mild
lift and it was last at $1.6334, having been as low as $1.6052
earlier in the month.
The surveys also showed though that as many as 600,000 voters
remained undecided, making the vote far too close to call. Polling
stations close at 2100 GMT ( 5 p.m. EDT) and a result is expected
early on Friday.
In commodities, the rise of the dollar was a dead weight on prices.
Gold steadied at $1,223.60 an ounce after having touched an
eight-month trough of $1,216.01.
Oil prices were further pressured by a government report showing
U.S. crude stocks rose sharply last week. Brent crude and U.S. crude
were both down roughly 0.2 percent at $98.80 a barrel and $94.30,
respectively.
(Additional reporting by Wayne Cole in Sydney; Editing by Catherine
Evans and Susan Fenton)
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