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FOCUS ON FED HIKE

Stocks hit, euro shines after ECB disappoints

TOKYO, December 4, 2015

Asian shares slipped while the euro retained lavish gains on Friday, a day after its biggest one-day surge in nearly seven years as the European Central Bank's stimulus package fell well short of markets' high expectations.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.2 per cent while Japan's Nikkei dropped 1.5 per cent.

On Thursday, Wall Street's benchmark S&P 500 stock index had its biggest one-day percentage decline since Sept. 28, dropping 1.4 per cent. The pan-European stock index of FTSEurofirst 300 shed 3.3 per cent, the biggest fall since Aug. 24.

The drama started after the ECB cut its deposit rate deeper into negative territory and extended its asset buying by six months.

Its rate cut of 0.10 percentage point, to -0.30 per cent, was smaller than a 0.15 to 0.20 percentage point cut many traders expected.

The central bank did not increase the amount of government bonds it buys while the six-month extension of the programme was perceived as bare minimum, given traders looked for an extension of one year or even making it an open-ended plan.

"It's like doing so much sweet talking before your marriage that you set it up to be a big disappointment," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

The package sent traders scrambling to unwind short euro positions which they had built since late October when the ECB chief Mario Draghi said there would be another round of stimulus measures.

The euro jumped 3.1 per cent on Thursday, posting its biggest single-day gain since March 2009. The common currency last traded at $1.0920, down 0.2 per cent from late US levels but still near its one-month high of $1.0981 hit on Thursday.

That took the dollar's index against a basket of six major currencies down to a one-month low of 97.591 .

The euro's rebound also helped to lift other currencies against the dollar, with European currencies outperforming.

The British pound rose 1.2 per cent to $1.5144 while the Swiss franc gained 2.4 per cent against the dollar to 0.9981 franc to the dollar. The yen gained 0.6 per cent to 122.65 per dollar.

Global bond yields shot up, with the 10-year US notes yield rising to as high as 2.347 per cent from 2.178 per cent.

The yield on 10-year German Bunds jumped about 20 basis points to 0.666 per cent from 0.474 per cent on Wednesday, the biggest jump since late April.

Investors are now focused on US jobs data, which is likely to cement expectations that the Federal Reserve will hike interest rates later this month, barring surprisingly weak readings.

Federal Reserve Chair Janet Yellen, speaking before Congress' Joint Economic Committee on Thursday, said the United States may be "close to the point at which we should be raising" rates.

She also said the US economy needs to add fewer than 100,000 jobs a month to cover new entrants to the workforce, perhaps setting an implicit floor for jobs growth that policymakers want to see.

That would be a fairly low bar given that economists' median forecast was 200,000, when even the most conservative forecast in a Reuters poll of more than 100 economists was 150,000.

US money market futures hardly budged after the ECB, pricing in about a 75 per cent chance of a rate hike this month and possibly two more rate hikes next year.

Also attracting investor attention was the Opec meeting later on Friday. Crude oil prices rose about 3 per cent on the eve of the meeting, as traders who although expecting no cuts in Opec production hedged their positions.

Brent crude futures rose to $43.84 per barrel, having bounced back from Wednesday's three-month low of $42.43.

Precious metals also rebounded, with gold rising 0.8 per cent on Thursday after hitting a near six-year low of $1,045.80 per ounce earlier in the day.

In early Friday trade, it last stood at $1,064.30, up slightly on the day and is on course to post its first weekly gains in seven weeks. – Reuters




Tags: euro | ECB | Asian stocks | Stimulus |

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