Euro near two-week low, shares up on rate cut hopes

LONDON, Feb 8 — The euro hovered near a two-week low and European shares rose today after the European Central Bank rekindled expectations that it could again take the knife to interest rates.

Strong Chinese trade data also helped lift optimism about global growth prospects, boosting oil, copper and Asian shares, although investors booking profits before Chinese new year holidays next week limited gains.

ECB President Mario Draghi yesterday levered the door to a rate cut back open, saying the bank would monitor the potential downward pressure of a strengthening euro on already near-target inflation.

European share markets opened higher on the hopes lower borrowing rates would also reverse some of the 8 per cent trade-weighted rise in the euro over the past six months that has began to weigh on exporters.

“We’re in a ‘risk-on’ mode and continental Europe should continue to do well in this environment,” said Cyrille Urfer, who heads up asset allocation at Swiss bank Gonet.

The pan-European FTSEurofirst 300 was up 0.5 per cent by 0815 GMT, though it remained on course for its second weekly loss in a row.

London’s FTSE 100, Paris’s CAC-40 and Frankfurt’s DAX were up 0.6, 0.4 and 0.3 per cent respectively and US stock futures pointed to a steady Wall Street start.

While Draghi said the recent surge on the euro was a sign of a return of confidence, he said: “We certainly want to see whether the appreciation is sustained and will alter our risk assessment as far as price stability is concerned.”

The comments went further than many analysts had expected and as European trading gathered pace the euro steadied at US$1.3398 after earlier dropping to US$1.33705, the lowest since January 25.

China said its exports grew 25 per cent in January from a year ago, the strongest showing since April 2011 and well ahead of market expectations for a 17 per cent rise, while imports also beat forecasts, surging 28.8 per cent on the year.

The MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.3 per cent and Australian shares rallied 0.7 per cent to 34-month highs.

“China’s economic conditions are improving and the trade data confirms the continuation of a recovery trend,” said Hirokazu Yuihama, a senior strategist at Daiwa Securities in Tokyo.

“Not just the trade data but retail, production and investment flows clearly show that the economy bottomed out in the third quarter last year.”

In the bond market, benchmark German Bund futures were little changed in early trade as Draghi’s cautious tone on the euro zone’s economy underpinned demand for low risk assets.

Investors focused on Irish bonds after benchmark 10-year yields slid to their lowest since before the start of the subprime crisis in 2007 on news Dublin had clinched a bank debt deal that would cut its borrowing needs over the next decade. — Reuters


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