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 Markets were starting to focus on what they saw as the positive
features of the ECB policy package, with surges to 2016 highs for
both U.S. oil prices and China's yuan also boosting confidence.
Wall Street was expected to open around 1 percent higher while
Europe's FTSEurofirst 300 jumped 2.3 percent as German shares
enjoyed their best day of the year and Italian markets surged over 4
percent. [.EU]
Euro traders were getting their breath back after a near 4 cent move
for the currency following the ECB's announcements.
The euro slipped back to $1.1110, having climbed from a trough of
$1.0820 to a peak of $1.1217 on Thursday, a vicious move that would
have left both bulls and bears nursing losses.
"The markets are doing alright today," Societe Generale FX
strategist Alvin Tan said. "The ECB did deliver easing for sure but
it was a mixed message."
"It fits with our broader view that for the euro -- and the yen, for
that matter -- to drop durably lower, the (U.S. Federal Reserve)
will have to raise its rates further."
Bond markets were also stabilizing, with German Bunds down 5 basis
points at 0.26 percent .
At one point, on Thursday German 10-year yields <DE10YT=RR> doubled
from a low of 16 basis points to a peak of 32 basis points, an
enormous move for a benchmark long-term bond.
ECB President Mario Draghi's suggestion there would be no further
interest rates cuts overshadowed the euro zone central bank's bold
easing package, prompting criticism that he had once again botched
his communication.
He was quick to note that new facts could change the outlook and
emphasized his willingness to adopt other radical measures, but by
then the damage was done.
Against the yen, the euro hit a three-week high of 126.86 yen on
Friday, but as with other currencies spent most of the European
session reversing and was at 126.40 as U.S. trading neared.
The dollar bounced back after coming off sharply as the risk mood
darkened. It was last up 0.5 percent at 113.78 yen, though still
well below Thursday's pre-ECB peak of 114.45.
Against a basket of it main FX peers, the U.S. currency added about
0.6 percent to 96.654, but it was still down 0.7 percent for the
week, having shed 1 percent on Thursday.
Many analysts considered the market reaction to the ECB rather
perverse given the actual steps were very aggressive.
As well as cutting all its main interest rates, the bank lifted its
asset-buying program by 20 billion euros a month, expanded the
assets to include non-bank corporate debt and said it would
effectively pay banks to take its cash and lend it on.
HOT OIL
In commodity markets, oil prices also edged higher after dropping on
Thursday, extending the recent run of see-saw trading. [O/R]
Brent added 1.7 percent to $40.73 a barrel, while U.S. crude gained
2.2 percent to $38.67 to hit its highest level of the year. Both of
the benchmarks are now up roughly 50 percent since their mid-January
lows. [O/R]
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The latest lift came from International Energy Agency, which
coordinates energy policies of industrialized nations, as it said
that oil prices may have finally bottomed out.
Production declines in the United States and other non-OPEC
producers are accelerating and an increase in supply from Iran has
been less than dramatic than expected, it added.
"There are clear signs that market forces ... are working their
magic and higher-cost producers are cutting output," the Paris-based
IEA said.
Europe's oil and gas index rose 1.9 percent and the STOXX Europe 600
Basic Resources index was up 1 percent, as prices of major
industrial metals also rose sharply.
Bank stocks were the top sectoral gainers, however, up over 5
percent as the fact the ECB will now be giving out interest free
loans and paying any bank that makes even the most minor
improvements to its lending levels, began to sink in.
The rise in the dollar was starting to take the shine off gold,
which had earlier made a 13-month top at $1,282.51 an ounce. It was
last at $1,264, on track to gain 0.5 percent this week.
Overnight, Asian shares had risen as the region also secured weekly
gains to outpace most of the rest of the world.
MSCI's broadest index of Asia-Pacific shares outside Japan
rose 1.1 percent on the day and the week, while Australia
ended up 0.3 percent.
Japan's Nikkei erased earlier sharp losses and ended up 0.5 percent,
though still fell 0.4 percent over the week.
Chinese shares lagged the region, weighed down by the banking
sector, as Beijing's plan to allow debt-to-equity swaps by
commercial lenders was viewed by some investors as being largely
negative. New lending by banks also sank.
The blue-chip CSI300 index staged a late recovery to close up 0.1
percent but both it and Shanghai Composite Index were down over 2
percent for the week.
China's central bank underlined its commitment to a firm yuan by
fixing the currency at the high for this year.
(Additional reporting by Wayne Cole in Sydney; editing by Catherine
Evans and Keith Weir)
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