adminWORLD shares edged toward six-year highs yesteday and the yen languished at long-term lows against the euro and dollar after a batch of strong US economic data boosted investor sentiment. The signs of an improving US jobs market and more cheerful consumers had spurred Wall Street to a record close on Wednesday, while reinforcing talk that the Federal Reserve could start scaling back its stimulus, which supported the dollar.
“Markets have taken on board the view that (US) rates are not going up next year even if they start tapering soon,” said Simon Smith, chief economist at FXPro.
As the buoyant mood spread, Japan’s Nikkei hit its highest close in nearly six years .N225 and Asian shares outside Japan .MIAPJ0000PUS rose 0.6 percent to reach a one-week high.
In Europe, Germany’s DAX index touched an all-time high while the pan-European FTSEurofirst 300 index .FTEU3 was up 0,3 percent and on its way to a third straight month of gains.
That was despite the latest proof of the ongoing problems in the euro zone, with data from the European Central Bank showing lending to firms fell 2,1 percent in October, equalling the biggest fall on record.
Shares in Britain’s housebuilders also fell sharply, with more than 1 billion pounds ($1,6 billion) wiped off the sector after the Bank of England unexpectedly scaled back a scheme that has been driving up mortgage lending over the last year.
Shares in Barratt Developments, Britain’s biggest housebuilder by volume, tumbled almost 10 percent while Persimmon’s, the largest builder by market value, fell over 6 percent to leave the FTSE 100 flat .FTSE as it underperformed Europe’s other main bourses.
However, it was not enough to prevent MSCI’s world equity index, which tracks share moves across 45 countries, gaining 0,25 percent as it edged closer to its best level since the start of 2008 .MIWD00000PUS.
Dollar demand
US stock and bond markets were closed for Thanksgiving festivities on Thursday.
In the still-busy currency markets, the dollar popped above 102,00 yen for the first time since May 29, though the euro maintained its strength against the greenback at $1,36 as an acceleration in German inflation trumped the weak ECB lending data.
“The German CPI data jumped quite significantly so that has the potential to feed through to the euro zone inflation number tomorrow,” said Morgan Stanley’s head of European FX strategy, Ian Stannard.
That is likely to reduce the immediate pressure on the ECB to cut its interest rates again, Stannard added, while other ECB factors could also give the euro some temporary support.
“Heading into the year-end we wouldn’t be surprised to see the euro holding up as we are likely to see some repatriation (of euros) from the banks. That’s because the year-end is when the ECB takes its snap shot of banks’ balance sheets for its Asset Quality Review,” he said.
With the yen already on the back foot, the euro’s momentum took it past 139 yen for the first time since June 2009.
So far this month, both the euro and dollar are up nearly 4 percent on the yen, which investors have been selling to raise funds for carry trades as the Bank of Japan remains committed to keeping ultra-loose monetary policy to shore up growth.
Inflation concern
The surging dollar, which gains as the heightened tapering expectations drive up bond yields, also pressured commodity bloc currencies like the Australian and New Zealand dollars as well as many emerging market currencies with weak economic prospects.
The Indonesian rupiah went as low as 12,000 per dollar for the first time in nearly five years, while the Thai baht slid to its weakest level in 11 weeks.
European bond markets were focused on the outlook for inflation and its implications for the European Central Bank, which holds a policy meeting next week.
Alongside the stronger German numbers, Spanish inflation rose 0.3 percent year-on-year in November from zero in the previous month, fuelling expectations that Friday’s overall euro zone inflation figures will come out at around 1 percent. Among commodities, Brent crude was holding above $111 a barrel as supply worries offset the positive outlook for demand from the signs of solid US recovery.
Gold snapped a two-day decline, gaining 0.3 percent to about $1,241.7 an ounce and moving away from a four-month low of $1,227.34 hit on Monday, though the outlook remains weak.
“In view of the apparent improvement in the (US) economy, investors are slowly pulling funds out of gold for better avenues of investment,” said Phillip Futures analyst Joyce Liu. — Reuters
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