Hong Kong - European and Asian shares rallied with US stock index futures and commodities as China strengthened the yuan’s fixing by the most in four months, weighing on the dollar after the European Central Bank signaled an end to interest-rate cuts.
The Stoxx Europe 600 Index jumped the most in two weeks, while a Bloomberg gauge of commodities prices climbed to a three-month high. Crude oil surged 2.3%, while industrial metals advanced. The yuan erased losses for the year, the currencies of resource-exporting nations appreciated and the Bloomberg Dollar Spot Index held near its lowest level since October.
The euro retreated, having strengthened the most in a month on Thursday after ECB President Mario Draghi damped expectations of more interest-rate cuts following a fresh round of monetary stimulus.
Central banks are playing a leading role in determining the direction of global financial markets this week and next. The ECB’s actions whipsawed European stocks over the past two days, while the People’s Bank of China whet risk appetite with Friday’s strengthening of the yuan fixing.
The Bank of Japan will be center stage when a policy meeting concludes on Tuesday, and the Federal Reserve decides on US interest rates two days later.
“China followed the ECB in refraining from pushing down its exchange rate,” Tommy Ong, a managing director for treasury and markets at DBS Hong Kong. “Broad-based dollar weakness means higher commodity prices and also means higher-to-more stable Asian emerging-market currencies as there’s less concern about capital outflows.”
An annual meeting of China’s legislature continues on Friday and the nation is due to release figures on industrial production, retail sales and fixed-asset investment on Saturday.
Stocks
The Stoxx Europe 600 Index climbed 1.8% as of 10:14. It closed down 1.7% on Thursday, after surging as much as 2.5% following the ECB’s announce of interest-rate cuts and increased asset purchases.
Futures on the Standard & Poor’s 500 Index rallied 1.1% and the MSCI Asia Pacific Index rose 0.7%, reversing an earlier loss. Japan’s Topix index gained 0.5%, Hong Kong’s Hang Seng Index rallied for the first time this week and the Shanghai Composite Index added 0.2%.
"The market was oversold considering the fact that the ECB announced additional stimulus,” said Tomoichiro Kubota, a senior analyst at Matsui Securities in Tokyo."The ECB has put a stop to further expansion of negative rates, which were cutting into bank earnings."
Commodities
The Bloomberg Commodity Index advanced 0.7%, headed for its best close since December 4. European and Asian shares rallied with U.S. stock index futures and commodities as China strengthened the yuan’s fixing by the most in four months, weighing on the dollar after the European Central Bank (ECB) signalled an end to interest-rate cuts.
The Stoxx Europe 600 Index jumped the most in two weeks, while a Bloomberg gauge of commodities prices climbed to a three-month high. Crude oil surged 2.3%, while industrial metals advanced. The yuan erased losses for the year, the currencies of resource-exporting nations appreciated and the Bloomberg Dollar Spot Index held near its lowest level since October.
The euro retreated, having strengthened the most in a month on Thursday after ECB President Mario Draghi damped expectations of more interest-rate cuts following a fresh round of monetary stimulus.
Central banks are playing a leading role in determining the direction of global financial markets this week and next. The ECB’s actions whipsawed European stocks over the past two days, while the People’s Bank of China whet risk appetite with Friday’s strengthening of the yuan fixing.
The Bank of Japan will be center stage when a policy meeting concludes on Tuesday, and the Federal Reserve decides on US interest rates two days later.
“China followed the ECB in refraining from pushing down its exchange rate,” Tommy Ong, a managing director for treasury and markets at DBS Hong Kong. “Broad-based dollar weakness means higher commodity prices and also means higher-to-more stable Asian emerging-market currencies as there’s less concern about capital outflows.”
An annual meeting of China’s legislature continues Friday and the nation is due to release figures on industrial production, retail sales and fixed-asset investment on Saturday.
Currencies
The Bloomberg Dollar Spot Index was little changed, set for a 0.7% weekly loss. The euro retreated 0.4% against the greenback, having surged 1.6% on Thursday after Draghi’s comments on interest rates.
“The ECB pulled out its bazooka overnight and unleashed a bold package of stimulus which exceeded or met expectations on every count,” Matthew Sherwood, head of investment strategy at Perpetual in Sydney, said in an email to clients.
"But then the ECB president in his news conference suggested that there would not be deeper cuts to negative regional deposit rates, which seemingly limits the extent to which the ECB can use policy to lower the euro.”
The yuan strengthened as much as 0.32% versus the greenback, briefly erasing its loss for the year, after the People’s Bank of China strengthened its daily reference rate by 0.34%. The magnitude of the PBOC’s change was a surprise, according to Khoon Goh, senior currency strategist at ANZ in Singapore.
The boost to the yuan also lifted the currencies of countries that export raw materials. Australia’s dollarapproached its highest level since July, Canada’s climbed toward a four-month high, rand surged 1.4% and the Russian ruble jumped 1.5%.
“Supporting the Aussie was the PBOC’s” yuan fixing, “which weighed on the US dollar against most major currencies,” said Elias Haddad, an exchange-rate strategist at Commonwealth Bank of Australia in Sydney.
Bonds
Sovereign bonds rallied in Europe, pushing Germany’s 10- year yield down by four basis points to 0.27%. France’s yield fell five basis points to 0.63%.