The European Central Bank's 1 trillion euro quantitative easing
programme, launched this month, has prompted investors to pile into
euro zone shares on bets a weak euro, low borrowing costs and cheap
oil will drive a surge in company profits.
There was a 0.5 percent dip on the pan-European FTSEurofirst 300
index as traders squared up for the quarter end, while Wall Street
was expected to see a similar-sized drop.
But Europe has rallied 16 percent since Jan. 1, with Germany's DAX
surging 23 percent and France's CAC 19 percent higher, compared to a
more modest 5 percent for London's FTSE and just 1.3 percent for the
U.S. S&P 500.
New euro zone data showed a small pickup in inflation following the
launch of the ECB's stimulus, and with the programme set to run for
a year and a half, investors remain upbeat on the region.
"For the moment we have decided not to take profits because Europe
has been lagging for several years so it still has room to
outperform," said Didier Duret, chief investment officer at ABN Amro.
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"And we think it still makes sense to allocate into the equity
market because the bond yields are quite frankly repulsive these
days."
Duret was talking about the fact that bond investors effectively now
have to pay to lend money to Germany as well as most other core
northern euro zone members.
German Bund and other euro zone yields have been falling since 2015
and they turned lower again in early afternoon trading amid uneasy
euro zone talks about Greece's finances.
Germany's Chancellor Angela Merkel said on Monday that Athens had a
certain degree of flexibility on which reforms to implement but
stressed that they must "add up".
"The question is: can and will Greece fulfil the expectations we all
have?" she said during a visit to Finland.
Greece's leader Alexis Tsipras responded by appealing for an "honest
compromise" but warned he would not agree to "unconditional"
demands.
BUYS DOLLARS, WEAR DIAMONDS
The euro was last down 1 percent against the dollar at $1.0720. Its
dive has been the dollar's gain, with the greenback recording its
biggest quarterly rise against the world's top six currencies
since 2008.
Wall Street, which is now facing the headwinds of that strength, was
expected to see a subdued session later though it will still notch
up its ninth straight quarter of gains.
One of the key supports has been that even though the Federal
Reserve is heading for its first rate hike in almost a decade, bond
yields have continued to fall.
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That is largely thanks to the ECB's efforts in Europe, but a
staggering 26 central banks around the world have either cut rates
this year or eased policy in some other way.
Japan's Nikkei finished the first quarter with a chunky 10 percent
gain and the often volatile Shanghai Composite Index hit another
seven-year high and gained 16 percent for the quarter on bets of
more stimulus from Beijing.
"Tax cuts, reductions to down payments on second homes, along with
further moves to (reserve) requirement ratios have all been
introduced to assist China's slowing housing sector and will be a
medium-term positive in the global growth story," Evan Lucas, market
strategist at IG in Melbourne, said in a note.
Emerging market stocks headed for their first quarterly rise since
the second quarter of 2014 driven by Chinese, but also Russian
shares' which have seen their best run since 2010 after being
trounced last year.
Russia especially has been helped as oil prices have steadied over
the last couple of months.
But they were on the slide again on Tuesday on prospects that OPEC
member Iran could reach a deal with six world powers on its nuclear
programme that could allow Tehran to sell more of its oil onto an
already saturated market.
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U.S. crude was last down 1.8 percent at $47.80 per barrel with Brent
down to $55.31. Although modest in recent terms, both were headed
for their third straight quarterly fall, a run that hasn't been seen
since the late 1990s.
(Additional reporting by Shinichi Saoshiro; Editing by Catherine
Evans and Susan Fenton)
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