Upbeat earnings, ECB stimulus hopes lift mood in Europe

Euro hits one-week low against the dollar

European shares edged up and the euro hit a one-week low against the dollar on Wednesday, driven by upbeat company earnings results and hopes of corporate bond buying by the European Central Bank.

 

Shares in Swiss engineering group ABB gained 3.1% after posting a bigger-than-expected rise in orders, helped by demand from the oil and gas industries. Outdoor equipment maker Husqvarna surged 6.1% after reporting a rise in earnings that was above forecasts.

 

The market moves were tentative as investors remain nervous about the state of the global economy, with the euro zone a key soft spot. Such worries may intensify on Thursday when regional business surveys are due.

 

Several sources told Reuters on Tuesday the ECB was considering buying corporate bonds on the secondary market and may make a final decision as soon as December with a view to begin purchases early next year.

 

That would expand the private sector asset-buying programme the ECB began on Monday with the aim of giving the economy a shot in the arm and safeguarding the euro zone from deflation, which has already gripped five of its 18 members.

 

The FTSEurofirst 300 index of top European shares was up 0.1% at 1,300.72 points, after surging 2.1% on Tuesday. The euro hit a one-week low of 1.27025 before bouncing to 1.2719, virtually flat on the day.

 

"The general takeaway here for a lot of people is that it shows commitment from the ECB trying to find ways to expand its balance sheet. And also it shows ... the ECB wanting to pick up the pace," said Paul Robson, a currency strategist at RBS.

 

In the United States, Apple Inc and Texas Instruments posted stronger-than-expected quarterly earnings, lifting the tech-heavy Nasdaq Composite Index more than 2% on Tuesday.

 

That, together with data showing a stronger-than-expected 2.4% rise in US domestic home resales last month provided evidence that the US economic recovery maintained some momentum.

 

"Sentiment turned positive overnight on good earnings reported by US corporates, much better than expected US existing home sales data and the rumours that the ECB is considering the option of buying corporate bonds in the secondary market," said Daniel Lee at Credit Agricole.

 

Some hopes were also coming from Japan, where trade data showed exports rose 6.9% in September from a year earlier, the fastest pace in seven months.

 

INFLATION NEXT

 

The upbeat signals from the United States bolstered the dollar, although traders were wary of US inflation data due at 1230 GMT.

 

Economists expect annual core CPI inflation to stay flat at 1.7% in September, and a cooler reading would add to speculation that the Federal Reserve will wait longer before raising interest rates.

 

The consensus view is that the US central bank will decide at its Oct 28-29 policy meeting to wrap up its third round of asset purchases with new money, known as quantitative easing. But short-term interest rates futures imply markets do not expect the Fed to hike rates until late 2015.

 

The dollar inched lower on the day against the yen to 106.88 yen.

 

Euro zone bond yields extended their falls on the back of the ECB's plans. German 10-year Bund yields, which set the standard for euro zone borrowing costs, fell 1 basis point to 0.86%. Peripheral bond yields fell by more.

 

"The news of bond buying had quite a beneficial effect on the non-German bond markets, for good reason, so spread narrowing was quite substantial and today there is still some after-effect of that," said KBC strategist Piet Lammens.