Europe and Asia shares climb after Bank of England monetary stimulus

Mark Carney's announcement soothes concern in markets over Brexit impact

The Frankfurt stock exchange - European shares rose on Thursday (Reuters)

European equity-index futures rose with Asian stocks amid a surge in government debt after the Bank of England’s policy easing soothed concern over the impact of the Brexit vote. Oil declined toward $41 a barrel as the dollar meandered ahead of US jobs data.

Consumer and energy stocks drove equity gains in Asia, paring the regional benchmark’s first weekly drop in about a month.

Yields on 10-year Australian and Japanese debt sank at least one basis point, as the notes joined a rally in bonds globally.

A measure of the dollar was little changed, while Australia’s currency strengthened. US crude slid after the biggest two-day increase in more than a month as prices fluctuated following a drop into a bear market this week.

The BOE cut growth forecasts for the UK by the most ever as policy makers unveiled a stimulus package aimed at containing the fallout from the British decision to leave the European Union.

Investors are now switching their focus to Friday’s update on nonfarm payrolls in the US Economists predict the report will show continued improvement in the labor market, a key factor for the Federal Reserve, which is mulling whether to stick to its plan to continue tightening monetary policy in 2016.

“The BOE’s move looked like an inevitable choice, but it was taken as a positive signal for investors in terms of boosting expectations for increased liquidity in the global market,” said Heo Pil Seok, chief executive officer at Midas International Asset Management Ltd. in Seoul, which oversees about $9 billion.

“While improved sentiment is reflected especially in the equities market today, the US data is something to keenly watch as it may fuel concerns of a rate hike.”

Payrolls probably rose by 180,000 workers in July, following a 287,000-person increase in June, according to the median of economists’ estimates compiled by Bloomberg. The jobless rate is projected to fall to 4.8 per cent, from 4.9 per cent in the previous month.

Stocks

Euro Stoxx 50 index futures gained 0.4 per cent by 7:28 a.m. London time. The MSCI Asia Pacific Index climbed 0.6 per cent, with groups of consumer-discretionary shares and energy producers rising at least 1 per cent. The gauge is down 0.1 per cent this week.

In Australia, the S&P/ASX 200 Index increased 0.4 per cent, as the Kospi index in Seoul added 0.9 per cent. New Zealand’s S&P/NZX 50 Index advanced 0.1 per cent after rising 0.3 per cent last session.

The measure is down 0.5 per cent this week, snapping a five-week run of gains. The Topix index in Japan slipped 0.2 per cent, after earlier rising as much as 0.5 per cent. It lost 3.2 per cent this week, the most in a month.

In Hong Kong, the Hang Seng index jumped 1.4 per cent and the Hang Seng China Enterprises measure advanced 1.3 per cent. Futures on the S&P 500 Index were up 0.1 per cent to 2,162, after the underlying benchmark added less than one point on Thursday.

The US “employment number is the catalyst for the market — that’s what is going to rule the pricing trends over the next few weeks,” said Jim Davis, regional investment manager at the Private Client Reserve of US Bank, which oversees $128 billion.

Bonds

Australian bonds drove gains in Asia, with yields on debt due in a decade down six basis points, or 0.06 per centage point, to 1.88 per cent. Similar maturity Japanese notes yielded negative 0.090 per cent, down one basis point, while rates on New Zealand bonds four basis points to 2.18 per cent.

Yields on 10-year Treasuries shed another one basis point to 1.49 per cent, after declining five basis points over the past two sessions. US debt climbed with European bonds last session as the BOE’s move reinforced the trend for monetary easing globally.

Almost all economists in a Bloomberg survey had forecast the BOE would cut its benchmark interest rate and most predicted other measures as well. Futures trading showed about a 47 per cent chance that the European Central Bank will ease by year-end while wagers on a 2016 increase by the Fed have been cut to 37 per cent from 59 per cent two months ago.

Currencies

The Australian dollar climbed to a three-week high after the nation’s central bank gave no interest-rate guidance in its quarterly statement Friday and left its growth and inflation forecasts little changed.

The Aussie rose 0.4 per cent to 76.59 US cents, after touching 76.64, the strongest level since July 15. It has appreciated by 0.8 per cent since July 29, adding to last week’s 1.8 per cent advance.

The pound rose 0.2 per cent to $1.3135, following a 1.6 per cent drop Thursday after the Bank of England cut interest rates for the first time since 2009 and said it would buy corporate bonds to combat sluggish growth.

The Bloomberg Dollar Spot Index, which tracks the US currency against a basket of its major peers, has gained less than 0.1 per cent since July 29, when it completed a 1.7 per cent weekly decline.

Commodities

West Texas Intermediate crude slipped 1 per cent to $41.53 a barrel following a two-day, 6.1 per cent rebound. US government data Wednesday showed gasoline inventories decreased, while crude stockpiles unexpectedly rose for a second weekly gain. Both are at the highest seasonal level in at least two decades.

Aluminum and zinc rallied in the wake of losses on Thursday, climbing at least 0.6 per cent in London. Gold for immediate delivery was up 0.2 per cent at $1,364.10 an ounce before the payrolls data, headed for a 1 per cent climb in the week, the safe-haven asset’s second straight weekly advance.

Corn for December delivery headed for a 2.8 per cent decline this week. November-delivery soybeans rose 1.4 per cent to trim this week’s drop to 3.2 per cent.

© Bloomberg