Euro Near 11-Year Low as JGBs Plunge Before ECB
The euro traded near an 11-year low against the dollar and Japanese 10-year yields jumped the most since 2013 amid speculation the European Central Bank will boost stimulus through asset purchases. U.S. and European equity-index futures climbed and Hong Kong stocks rose.
The common currency was 0.2 percent weaker at $1.1588 by 7:15 a.m. in London, near the lowest close since November 2003, after the ECB was said to propose 50 billion euros ($58 billion) of asset purchases a month through 2016. The rate on Japan’s 10-year notes rose as much as eight basis points, while yields on 20- and 30-year bonds also jumped. Futures on the Euro Stoxx 50 climbed 0.3 percent and Standard & Poor’s 500 Index contracts advanced 0.2 percent. The Hang Seng Index added 0.6 percent as traders said China’s central bank is injecting 50 billion yuan ($8 billion) using reverse-repurchase agreements.
Investors are waiting on the outcome of an ECB policy meeting that concludes today after the Bank of Japan left its stimulus program unchanged Jan. 21. An ECB Executive Board proposal foresees asset purchases of as much as $1.28 trillion through the end of 2016, according to two euro-area central-bank officials who have seen the document. China will avoid a hard landing and is focused on ensuring long-term medium-to-fast growth, Premier Li Keqiang told global leaders in Davos.
“Risk markets are rallying on leaks of the ECB sovereign QE program,” said Matthew Sherwood, Sydney-based head of investment markets research at Perpetual Ltd., which has about $21 billion in funds under management. “I’m not convinced that even a 1 trillion euro package will be enough to save the euro area. It may be the case that this process has dragged on so long it’s mostly factored into financial-market prices and was a case of ‘buy on the rumor and sell on the fact’.”
Euro, Yen
The euro was at 136.82 yen. The Stoxx Europe 600 Index advanced 0.6 percent to extend a seven-year high Jan. 21, erasing a drop of 0.8 percent as the details of the ECB proposal became public.
The ECB plan could still be changed significantly, the central bank officials said, asking not to be identified as it’s confidential. Purchases won’t start before March 1, one of the people said. The ECB will announce its policy decision on Jan. 22.
Japan’s currency slipped to 118.09 per dollar today and the yield on the country’s 10-year notes climbed the most since May 2013 to as high as 0.325 percent.
The rate on 20-year bonds due Dec. 2034 jumped 18 basis points to 0.1.075 percent, while the 30-year yield climbed 18 1/2 basis points to 1.29 percent. The surge in benchmark rates came as the bid-to-cover ratio for an auction of 20-year notes fell to the lowest since November a day after the BOJ kept stimulus steady and cut its inflation outlook.
Booking Profit
“Such events as the 20-year JGB auction and the BOJ meeting are over and market players wanted to book profits ahead of the ECB meeting,” said Naomi Muguruma, a Tokyo-based economist at Mitsubishi UFJ Morgan Stanley Securities Co. “Markets have already priced in the ECB’s bond buying to such an extent that there was risk that the outcome will disappoint, so that led to the preemptive move of scaling back positions.”
The yield on U.S. 10-year notes rose one basis point to 1.88 percent.
The Hang Seng China Enterprises Index climbed 0.5 percent and the Shanghai Composite Index (SHCOMP) closed 0.6 percent higher, capping a third straight day of gains.
The People’s Bank of China last used open-market operations to add cash in January 2014. The authority also rolled over a 269.5 billion yuan lending facility to banks and added 50 billion yuan in loans, it said on its official microblog account Wednesday night. The week-long Lunar New Year holiday starts Feb. 18.
Asia Valuations
The MSCI Asia Pacific Index slipped 0.1 percent to 139.51 as gains in Australia and Hong Kong were offset by losses in Tokyo and the yen. The gauge trades at 13.6 times estimated earnings, while the Stoxx 600 fetches 14.9 times.
The S&P 500 is trading at 16.6 times the projected earnings of its members, according to datacompiled by Bloomberg. Valuations reached a five-year high at the end of last year.
Japan’s Topix Index retreated 0.1 percent, while South Korea’s Kospi was little changed lower.
A gauge of energy shares in Australia’s ASX 200 added 2.1 percent, paring its decline this year to 9 percent. The Bloomberg Commodities Index increased 0.1 percent today after jumping 1 percent on Jan. 21.
U.S. Earnings
Whitehaven Coal Ltd. climbed 7.4 percent and Beach Energy Ltd. added 3.9 percent after the Australian Financial Review reported an unnamed suitor has engaged an investment bank to look into potential bid for the company.
Profit at S&P 500 companies probably climbed 0.8 percent in the final three months of 2014, analysts predicted, down from an October estimate of 8.1 percent.
EBay Inc. added 2.8 percent at 6:25 p.m. in New York as the online marketplace said it will cut 2,400 jobs after its sales forecasts fell short of analysts’ estimates. American Express Co. slid 2.2 percent. The biggest U.S. credit-card issuer by purchases will cut more than 4,000 jobs as part of a restructuring.
Oil in New York was 0.7 percent lower today after it rebounded Jan. 21 from the biggest drop in a week. Crude prices are the most volatile in more than three years. Oil settled at $47.78 a barrel in New York, retracing a 4.7 percent slide on Tuesday. Brent for March was 0.1 percent weaker after it gained 2.2 percent to end at $49.03 a barrel in London.
Canada’s dollar weakened to C$1.2362 per dollar, extending yesterday’s 1.9 percent plunge. Canada’s central bank unexpectedly slashed its main interest rate due to the plunge in oil prices, saying the shock will weigh on everything from inflation to business spending. on the central-bank rate cut.
Source: Bloomberg – Euro Near 11-Year Low as JGBs Plunge Before ECB
