World markets remain reassured by ECB bond-buying plan
Friday 07 September 2012
A bond-buying plan from the European Central Bank continued to support stocks today but the dollar slid after worse-than-expected US jobs data lifted expectations that the Federal Reserve will back another monetary stimulus.
Financial markets have reacted positively to the ECB's program, unveiled yesterday by ECB president Mario Draghi, because it lowers the possibility that the euro currency union will break up, at least in the near-term. Stocks have risen strongly, as has the euro and the price of oil, while the costs of borrowing for countries like Spain and Italy has become more manageable.
The centerpiece of the plan — the ECB's most ambitious response yet to Europe's debt crisis — is a commitment to buy unlimited amounts of short-term bonds from euro countries that request help. The plan is meant to ease the financial pressures on Spain and Italy, the third- and fourth-largest economies in the eurozone, by giving them time to reduce their debt and reform their economies.
"Yesterday's actions by the ECB .... look like they could well buy Europe some additional time to sort out the problems that have plagued the single currency for the last three years," said Michael Hewson, senior market analyst at CMC Markets.
In Europe, Germany's DAX was up 0.7 per cent at 7,221, while the CAC-40 in France rose 0.3 per cent to 3,520. The FTSE 100 index of leading British shares was 0.3 per cent higher at 5,794.
In the US, the Dow Jones industrial average fell 0.07 per cent to 13,286 but the broader S&P 500 index rose 0.2 per cent to 1,435. Yesterday, the S&P soared to its highest level since January 2008, while the Dow hit its highest mark since December 2007.
US stock markets lost their shine after figures showed the U.S. economy created only 96,000 jobs in August. That was below market expectations for a 130,000. The July increase was also revised down to show a 141,000 gain instead of 163,000.
Despite a surprise fall in the unemployment rate to 8.1 per cent associated with a smaller labor force, the worse-than-anticipated payrolls figures failed to dent stocks too much as they have boosted expectations that the US Federal Reserve will enact another monetary stimulus after its next policy meeting next week.
However, the dollar fell sharply after the figures and the euro was 1.3 per cent higher at $1.2794, a near four-month high. Previous monetary easing by the Fed has resulted in stocks advancing and the dollar falling.
"The dollar is showing independent weakness across the board this morning as financial markets anticipate further Fed easing at next week's Fed meeting," said Micahel Woolfolk, an analyst at Bank of New York Mellon.
Earlier in Asia, stocks advanced following the previous day's gains in Europe and the US.
Japan's Nikkei 225 index surged 2.2 per cent to close at 8,871.65. Hong Kong's Hang Seng jumped 3.1 per cent to 19,802.16 — its biggest one-day percentage gain since 17 January.
South Korea's Kospi bolted up 2.6 per cent to 1,929.58. Australia's S&P/ASX 200 rose 0.3 per cent to 4,325.80.
Mainland Chinese shares soared. The benchmark Shanghai Composite Index jumped 3.7 per cent to 2,127.76 and the smaller Shenzhen Composite Index added 3.8 per cent to 891.53.
Oil prices shed some recent gains after the U.S. job figures indicated the U.S. may not be growing as much as anticipated — benchmark oil for October delivery was down $1.13 a barrel at $94.40 a barrel in electronic trading on the New York Mercantile Exchange.
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