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Markets surge on softer Trump tone
March 09, 2018
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LONDON: Global stocks pushed higher on Thursday following signals from the White House that US President Donald Trump may tone down his tariff plans.

Meanwhile the euro got a boost, but only briefly, from the European Central Bank inching towards a stimulus exit.

As expected, the ECB held its key interest rates at record lows, but it signalled greater confidence in the eurozone economy and its own chances of hitting its elusive inflation goal by dropping talk of boosting its mass bond-buying programme.

The euro jumped up immediately after the ECB statement was released, from $1.237 before to $1.243. It later gave up those gains.

Analysts said the ECB dropping a phrase from the statement that it could increase its bond-buying programme if necessary wasn’t that big a change as no one expected the central bank to increase purchases.

“Easing bias may be gone, but ECB balance sheet won’t be reducing in size anytime soon with reinvestments for extended period,” tweeted market analyst Michael Hewson at CMC Markets.

Meanwhile, he noted, the US Federal Reserve is raising rates and reducing its holding of bonds. “Doesn’t feel that hawkish”.

In equities trading, a softer tone on threatened tariffs from the White House late Wednesday helped Asian stock markets rise on Thursday, continuing a week of volatility sparked by fears of a global trade war.

Stocks in Europe and the United States also moved higher.

London’s benchmark FTSE 100 index was up 0.3 per cent compared with Wednesday’s close in afternoon trading.

In the eurozone, Frankfurt’s DAX 30 added 0.4 per cent and the Paris CAC 40 climbed 1.1 per cent.

Equities have swooned since Trump last week unveiled the levies as part of his “America First” agenda, which were met with anger across the world and from leaders in his own Republican Party.

European Union officials have outlined planned retaliatory measures on targeted American exports to be rolled out if the US makes good on its threat, while China has said it would make “an appropriate and necessary response”.

This week has seen sharp swings in stocks from positive to negative as predictions the measures will not be as bad as feared were offset by news Wednesday the president’s pro-trade top economics advisor Gary Cohn had resigned.

But for globalists, Thursday was positive after White House press secretary Sarah Sanders said there were “potential carve-outs for Mexico and Canada” and other countries based on national security. And Commerce Secretary Wilbur Ross insisted: “We’re not looking for a trade war.” A final decision on the tariffs is expected soon.

“There is a feeling that President Trump may be toning down his protectionism push,” said Makoto Sengoku, market analyst at Tokai Tokyo Research Centre.

“Things may not turn out as bad as we feared before,” he told AFP.

Elsewhere on Thursday, oil prices steadied after tumbling two per cent Wednesday on a surge in US crude output.

The euro and government bond yields in the single currency bloc rose on Thursday after the ECB dropped a promise to increase bond buys if needed, taking a baby step towards dialing back its extraordinary monetary stimulus.

Bond purchase

Keeping its broader policy unchanged, the ECB said it could still extend its 2.55 trillion euro ($3.16 trillion) bond purchase scheme beyond September if needed but omitted a reference to bigger purchases, a signal that it remains on track to end a three-year-old stimulus scheme before the end of 2018.

“It’s not a major change in itself in that nobody was expecting an increase in asset purchases anyway,” said Mizuho rates strategist Antoine Bouvet.

“But the market is concerned that the implication could be that the ECB is ready to move rates earlier than what is currently priced in.” The move came as a surprise to markets, sending both the euro and government bond yields higher.

Europe’s single currency erased earlier losses and rose back above $1.24 after the ECB decision.

The euro, which was down 0.3 per cent at $1.2378 before the announcement, firmed to the day’s high of $1.2431 before easing back 0.1 per cent to $1.2409.

Government bond yields meanwhile rose across the region and five-year bonds bore the brunt of the selloff, reflecting their sensitivity to rate-hike expectations. Money market futures also sold off as investors ratcheted up their rate-hike bets.

Both German and French five-year bond yields rose to two-week highs and were up 4-5 basis points on the day.

Banking stocks, which benefit from prospects of tighter monetary policy, however, spiked higher following the ECB’s decision. The eurozone banking index hit a fresh day high, up 0.6 per cent, while the bank-heavy Italian FTSE MIB index was up 0.6 per cent.

Agencies

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