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Euro steady before more debt auctions

Jan 13 2011 09:57

Hong Kong - The euro was stable on Thursday and could head higher if Spain and Italy like Portugal also find decent demand for their debt, while US oil prices marched above $92 a barrel, potentially straining consumers watching food prices climb.

Promises from China and Japan to support Europe through its fiscal crisis have also helped to keep the euro above $1.31 and the closeout of small bets against the euro could push it up above $1.32 in the near term, particularly as global equity markets hit two-year highs.

The eurozone's financing troubles have generally been a drag on investors' risk taking, though with signs that highly indebted European countries are able to tap capital markets albeit at high borrowing costs, risk seeking may be back in play.

Japan's Nikkei share average rose 0.7% to an 8-month high, with stocks of large exporters among the biggest boosts to the index.

"The strong bond auction in Portugal has calmed the markets and with no major negative factors in sight, foreign funds continue buying lagging banking and property shares," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management, in Tokyo.

Japanese bank stocks outperformed a second day as foreign investors kept loading up on previously underweighted financials. Shares of Mitsubishi UFJ Financial Group , Japan's biggest bank by assets, gained 1.3%.

HSBC Holdings will be a focus on Thursday after its London-listed shares climbed 3.8% overnight. The Hong Kong-listed shares of the company were heavily traded on Wednesday as investors bet the bank would catch up with the share price gains of rival Standard Chartered.

The MSCI index of Asia Pacific shares outside Japan was up 0.8%, within striking distance of a 2 ½-year high that has been tested twice in the past two months.

Euro bounce temporary?

The euro was holding at $1.3120 , up around 2% so far on the week. Traders may take a shot at the low from January 3 at $1.3248 in the next few sessions, though that may depend on how well Spain's €3bn two-year bond auction and Italy's combined €7bn debt auctions go.

"We can't help feeling that the bounce in sentiment will prove temporary and whilst it may continue over the short-term with attendant upside risks for the euro, it is unlikely to last for long unless concrete measures are unveiled by the authorities in Europe," Mitul Kotecha, global head of foreign exchange strategy with Credit Agricole CIB in Hong Kong, said in a note.

For now, Portugal's successful fund raising in the bond market, and at a lower cost for its 10-year debt issue, along with encouraging eurozone industrial production data, helped put a spring in the step of the common currency.

US crude oil prices rose above $92 after crude stocks in the world's largest oil user fell more than expected and a cold weather stoked demand for heating oil in the US Northeast.

Food inflation remained a global concern. There appeared to be no let up in climbing costs of edibles. US corn futures jumped 1.5% on Thursday, while soybeans rose nearly 1% to their highest in almost 2 ½ years, buoyed by a surprisingly deep cut in the US Agriculture Department's forecast for US corn and soybean stocks.

italy  |  spain  |  portugal  |  europe debt crisis  |  commodities  |  markets  |  oil  |  euro



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