Tokyo - European stock index futures rose on Thursday, after
short-covering and value-hunting lifted Asian shares on optimism that eurozone
leaders are acting to aid the bloc's financial sector and US data suggesting
the economy could avoid recession.
An easing of risk aversion, after an intensive sell-off earlier this week on fears that Europe's debt problems could trigger a new global financial crisis, helped boost commodities and saw Asian credit markets tighten sharply.
"The US data supported a view that despite the recent
deterioration in sentiment, the financial turmoil so far has not had a serious
material damage to the economy, at least in the United States," said
Hiroki Shimazu, senior market economist at SMBC Nikko Securities.
"Shares are being bought back as the recent sell-off
had brought the market to levels reflecting a recession, and a sharp loss in
corporate profits, which is now seen as overdone."
MSCI's broadest index of Asia Pacific shares outside Japan
rose 3.3%, recouping more than half the steep losses made this week and moving
away from a two-year low hit on Tuesday.
The Nikkei share average rose 1.7%, snapping a four-day
losing streak in a short-covering rally - when investors realise gains by
buying back borrowed stock they had previously sold in a bet on falling prices
- with commodity- and tech-sector shares in demand.
Hong Kong shares also rose from oversold conditions as investors covered short positions, propelling strong gains in several China-related names that have been among the most heavily shorted in the last few sessions. The Hang Seng Index jumped 4.7%.
But a disappointing start for China's largest listed
brokerage Citic Securities, which fell as much as 10% on its Hong Kong debut,
highlighted that investor confidence has not fully recovered.
"Investors want to look for stocks now with a track
record with very low valuations. They don’t have the appetite for new
stocks," said Patrick Yiu, a director at CASH Asset Management.
Overall market volatility as measured by the VIX index ,
Wall Street’s so-called "fear gauge", fell 7% to 37.81 on Wednesday,
down sharply from this week’s peak of 46.88, lending support to investors
cautiously putting some risk back on in the near-term.
The VIX has traded in a 30-48 range after breaking higher in
August, and failures to test the highs this week may raise the prospect of a
swing lower in the near-term. A clear break in either direction would indicate
the next major move.
Futures for the Euro STOXX 50, Germany’s DAX and France’s
CAC-40 were 0.7% - 0.9% higher.
Markets eye ECB decision
Asian credit markets reflected easing strains, with the
iTraxx Asia ex-Japan investment grade index narrowing by about 10 points after
a sharp widening at the start of this week.
Investors were likely to remain cautious about whether the
market relief would be sustained, ahead of key events including the European
Central Bank’s policy meeting later on Thursday, the last meeting to be held
under the presidency of Jean-Claude Trichet, and Friday’s US non-farm payrolls.
The ECB was expected to hold rates at 1.5% and restore long-term
lending to banks, preparing the ground for a rate cut before the year-end. The
rate decision was due at 11:45 GMT, with Trichet’s news conference at 12:30
GMT.
The euro was steady around $1.3350 ahead of the ECB meeting, well off a nine-month trough of $1.3144 struck this week.
In a Reuters survey taken last week, 56 out of 75 economists
said they expected the ECB to hold rates this time around, though 13 saw a 25
basis points cut and 7 predicted a 50 bp cut. A rate cut could reignite market
jitters about the eurozone's sovereign debt woes hurting the economy, and
resume selling pressures.
German Chancellor Angela Merkel said on Wednesday that Berlin was ready to recapitalise its banks if needed, adding some more reassurance following an agreement on Tuesday by European finance ministers to safeguard banks in the face of mounting concerns about a Greek default.
Further adding to positive sentiment was data showing growth
in the US service sector stood steady in September and private hiring picked
up, suggesting the economy was not yet slipping into recession.
US crude oil steadied above $79 a barrel on Thursday as a
surprise drawdown in US crude inventories helped offset pressure from the euro
debt crisis. Brent crude was above $102.