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World stocks recover from wobble as ECB sends euro, yields higher

Reuters  |  LONDON 

By Helen Reid

(Reuters) - World stocks scaled fresh peaks on Friday while the hit a three-year high and Bund yields rose as progress on forming a German gave fresh impetus to a market sell-off triggered by signs the may accelerate an end to its stimulus.

MSCI's broadest gauge of the world's stock hit yet another record high and was on track to rise for its eighth of the nine business days so far this year -- for a total increase of 3.5 percent.

U. S. stocks were set to open higher as well, likely hitting new records once again having made a rapid recovery from Wednesday's losses. Dow Jones, and Nasdaq futures were up 0.1 to 0.4 percent.

"This bull market is highly related to the fact we are facing good growth, low inflation and soft monetary policy normalisation. If any of those were to be shaken that would be a big problem," said Jeanne Asseraf Bitton,

Germany's 10-year Bund yield hit a fresh five-month high of 0.54 percent after Angela Merkel's conservatives and the Social Democrats agreed a blueprint for formal coalition negotiations, that also buoyed the

Germany's DAX gained 0.3 percent on the and European stocks took their cue from a recovery in Asian trading, but gains were more muted than the stellar start to the week as a surging weighed on European exporters.

MSCI's index of European stocks rose 0.2 percent as the hit its highest in three years at $1.2128 and last traded up 0.8 percent at $1.2126.

The euro's overnight index swap rates have risen sharply this week as traders priced in a higher chance of a rate hike early next year.

While the currency's rise has reflected growing optimism over the bloc's economic recovery, investors have flagged it as a potential brake on stocks. Monica Defend, head of strategy at Amundi Asset Management, said the currency, for which she has a target of $1.22, was the biggest risk to European equities.

"COMPLACENT" HIT BY ECB

A sell-off in European bonds gathered pace, with yields driven higher by minutes on Thursday of the ECB's December meeting that showed it thinks it should revisit its communication stance in early 2018.

Lyxor's Bitton said Bund yields were already near to hitting her target for the first quarter.

"were a bit too complacent about bonds so they took some excuses to correct," she said. "We were a little surprised that the market reacted so strongly to the "

The minutes showed that with the zone seeing its best growth in a decade, policymkaers were considering a gradual shift in its stance to reduce the focus on purchases and raise the emphasis on interest rates.

The has pledged to continue its purchase programme at least until September, and investors expect any rate hike to take place only next year.

Amundi's Defend said the gradual removal of liquidity from central banks would drive volatility higher across asset classes this year.

The end of a turbulent week for also saw

yields extending Thursday's pullback after disputed a media report that officials had recommended it slow or halt its purchases of U. S. bonds.

The 10-year Treasury yield stood at 2.5425 percent, settling down further from Wednesday's 10-month high of 2.597 percent when fears of a bear market gripped investors.

"Our target for U. S. 10-year treasuries is 2.8 -- and we might afford up to 3 percent -- but going beyond that it's becoming an alert signal," said Amundi's Defend.

The dollar stayed in the doldrums after U. S. wholesale prices dipped in December from November, reinforcing investors' expectations that inflation will remain low.

The dollar index slipped to a six-week low, down 0.5 percent.

Bitcoin flirted with this year's low, having fallen 11.1 percent on Thursday after the in South Korea, a major source of digital demand, unveiled plans to ban cryptocurrency trading.

It traded at $13,926.58 on the Bitstamp exchange, up 5.3 percent but not far from Thursday's low of $12,800, which was its lowest since Dec 31.

retreated from 2014 highs hit the previous day, but stayed near three-year highs on signs of tightening supply in the

Brent crude futures hovered at $69.28 a barrel after hitting $70.05 a barrel on Thursday, their highest level since November 2014, while U. S. Intermediate (WTI) crude futures stood at $63.49, down 0.3 percent on the day.

Investors warned that while rising were supportive, they could weigh negatively especially on crude consuming regions.

(Reporting by Helen Reid; Editing by and Gareth Jones)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Fri, January 12 2018. 17:07 IST
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