Asian stocks hit their highest level in 18 months, with positive momentum lifting European shares which were helped by Societe Generale earnings. Yields fell on some of the euro zone’s battered low-rated bonds as investors put aside the political risks that have dominated markets this week. After trading flat, S&P futures bounced as US traders walked boosted by a spike in the USD/JPY, ahead of earnings reports from Coca-Cola, Reynolds American, CVS Health, Nvidia and Twitter.
Rising oil prices pushed energy company shares higher in Europe on a busy day of corporate earnings while Asian stocks hit their highest in one and ahalf years. “The stabilization of the oil price after its recent wobbles, together with solid earnings, for example, Soc Gen today, is driving the positive sentiment,” said Andy Sullivan, portfolio manager with GL Asset Management UK in London.
The Euro STOXX 600 index rose 0.4 percent. Bank shares also rose after French lender Societe Generale reported lower fourth-quarter net income that nonetheless beat analysts forecasts. MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.3 percent to their highest since July 2015 with Hong Kong, Taiwan and China among the region’s best performing markets. Japanese shares, however, fell 0.5 percent, hit by earlier yen strength the day before Japan’s Prime Minister Shinzo Abe meets U.S. President Donald Trump.
“We have some relief with investors shrugging off some of their concerns with a feeling that things went too far, too fast,” said Martin Van Vliet, senior rates strategist at ING.
With much attention recently on global rates, yields on Spanish and Italian 10-year government bonds fell. Earlier this week, concern over the impact of elections this year in countries including France and Germany saw investors sell bonds of lower-rated euro zone countries. Spanish 10-year yields fell 4 basis points to 1.66 percent while Italian equivalents fell 3 bps to 2.2 percent. French yields dipped 1 bps to 1.01 percent. The premium investors demand to hold French rather than German debt hit its highest in four years on Wednesday, three months before the final round of a presidential election expected to include far-right, anti-euro candidate Marine Le Pen. Yields on German 10-year bonds, seen as among the world’s safest assets, rose 0.5 bps to 0.31 percent.
In addition to political worries, bond investors are contemplating the impact of the ECB eventually winding down its bond-buying stimulus scheme, which has driven down borrowing costs in the bloc for the past two years. ECB President Mario Draghi and German Chancellor Angela Merkel, bidding for re-election later this year, meet on Thursday. A number of German officials have called on the ECB to unwind its monetary stimulus.
The euro steadied just below $1.07 after falling on Wednesday to a two-week low of $1.0640. The yen fell 0.3 percent to 112.39 per dollar, having earlier traded as strong as 111.70. The dollar index was unchanged.
In the US, 10Y yields fell to their lowest since mid-January on Wednesday as investors re-assess how many interest rate rises can be expected from the Federal Reserve and look for clarity over whether Trump will make good on his campaign pledges for tax cuts and infrastructure spending. Ten-year Treasuries yielded 2.36% in European trade on Thursday, up 1.2 bps.
Oil prices rose after an unexpected draw down in U.S. gasoline inventories. Brent crude, the international benchmark, rose 51 cents a barrel, or 0.9 percent, to $55.63. In a sign that political risks are still on the radar, gold held close to three-month highs touched on Wednesday. Spot gold rose 0.1 percent to $1,243 an ounce, compared with from Wednesday’s high of $1,244.67.
Bulletin Headline Summary from RanSquawk
- Major European indices trade positively this morning and general sentiment leans toward risk on
- The USD continues to trade in limbo, and while traders continue to look across the spectrum of major counterparts, we see there is reluctance to reinstate the US reflation trade, with USD/JPY notably restricted
- Highlights include Initial Jobless Claims, Speakers include: BoE Govenor Carney, Feds Evans, and Feds Bullard
Market Snapshot
- S&P 500 futures up 0.2% to 2,295
- Brent Futures up 0.9% to $55.62/bbl
- Gold spot up 0.1% to $1,243.30
- U.S. Dollar Index down 0.2% to 100.12
- STOXX Europe 600 up 0.3% to 364.95
- German 10Y yield rose 1.2 bps to 0.308%
- Euro up 0.07% to 1.0705 per US$
- Brent Futures up 0.9% to $55.62/bbl
- Italian 10Y yield fell 12.1 bps to 2.246%
- Spanish 10Y yield fell 6.7 bps to 1.629%
- MXAP down 0.2% to 143.03
- MXAPJ up 0.4% to 459.43
- Nikkei down 0.5% to 18,907.67
- Topix down 0.7% to 1,513.55
- Hang Seng Index up 0.2% to 23,525.14
- Shanghai Composite up 0.5% to 3,183.18
- Sensex up 0.1% to 28,330.91
- Australia S&P/ASX 200 up 0.2% to 5,664.62
- Kospi up 0.04% to 2,065.88
