London - Shares gained and the euro hit a
one-week high on Monday as China’s move to beef up banking activity supported
optimism for global growth and as Greece edged closer to securing a bailout,
though rising oil prices weighed on the recovery hopes.
Trading was subdued as euro zone ministers gathered to discuss the
Greek deal, with the closure of U.S. markets for a holiday having the potential
to exaggerate any price moves.
The finance ministers are expected to approve a second bailout for
Greece later in the day to try and draw a line under months of uncertainty that
has shaken the currency bloc, although more work was still needed to make the
numbers add up.
“Today we are aiming to finalise the decision on a new rescue
package for Greece,” German finance minister Wolfgang Schaeuble said on his way
into the meeting in Brussels.
The euro traded was up 0.7 percent at $1.3244, off a one-week high
of $1.3277, but mainly in reaction to China’s decision on Saturday to cut the
amount of cash its banks must hold in their reserves, with traders expecting any
Greek deal to bring only short-term gains.
“I think we will see a rally, but not a strong rally because we’ve
been trading this topic (Greece) for a long time,” said Niels Christensen, FX
strategist at Nordea.
“Even if we get a deal there are still issues about (debt)
restructuring and how the portfolio of Greek bonds at the ECB will be dealt
with.”
Although a Greek deal is expected to initially help other
peripheral European bond markets, worries the restructuring could push private
bond holders further behind official lenders when it comes to taking forced
losses, limited the gains for Spanish and Italian debt.
Italian 10-year yields fell 5 basis points to 5.54% while
similar Spanish 10-year government bond yields were also lower on the day, down
11 basis points at 5.16%.
The European Central Bank, which effectively capped a rise in
peripheral yields at the end of last year with its controversial market support
programme, announced it did not buy any government bonds last week for the first
time since it restarted purchases it in early August.
China lends a hand
China’s move to help growth in the world’s second-biggest economy
formed part of a global trend towards easier monetary policy by major central
banks, aimed at supporting a fragile economic recovery being led by the giant
U.S. economy and underpinning demand for riskier assets this year.
The latest action lifted copper and gold prices, which rose 0.6
percent and 0.5 percent respectively and boosted the Australian dollar by 0.5
percent to around $1.0763.
Gold is nearly 11 percent so far this year, benefiting from the
rebound in the euro and expectations that U.S. monetary policy will remain
loose, cutting the cost of holding non-yielding bullion. But analysts say the
appeal of other investments could keep the metal rangebound this year.
The recent flurry of central bank moves, which included a surprise
easing by the Bank of Japan on Feb. 14, have been a major factor behind the
rally in global equities over the past two months.
The MSCI world equity index rose 0.5 percent on Monday to post
gains of over nine percent this year.
The FTSEurofirst 300 index of top European shares was at its
highest level since early August, up 0.5 percent as resource companies benefited
from expectations that China’s policy action would boost demand for commodities.
On Friday in New York the S&P 500 index ended its sixth
positive week out of seven so far in 2012, lifting it near levels not seen in
more than three years. The index has risen 8.2 percent so far this year.
Emerging stocks hit six-month highs for a second straight trading
session on Monday with the MSCI emerging equities index gaining 0.35 percent.
Riskier assets like equities may get another shot in the arm next
week when the European Central Bank offers more cheap three-year funds to the
region’s banks. Polls by Reuters have shown the ECB could lend around half a
trillion euros at the tender on Feb. 29.
But analysts point to another consequence of the flurry of policy
easing - the rising price of oil - as a growing risk to the growth outlook.
J.P. Morgan Chase raised its 2012 price forecast for Brent crude by
$6 to $118 a barrel on supply risks and rising economic growth. It also hiked
its forecast for 2013 to $125 from $121.
Brent crude briefly rose to an eight-month high above $121 a barrel
on Monday before settling to trade around $120, as Iran halted exports to
Britain and France months ahead of a European Union embargo.
U.S. crude oil futures rose $1.75 to $105 a barrel.
“The recent price increase has been even sharper in recessionary
Europe with Brent priced in euros close to record levels,” said Lee Hardman,
currency economist at Bank of Tokyo-Mitsubishi UFJ in London.
“The growing headwind will both reinforce recessionary forces and
dampen any recovery.”