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Shares flirt with record highs on ECB easing bets

May 29, 2014

By Francesco Canepa, Sudip Kar-Gupta and Toby Chopra

LONDON (Reuters) – Global shares flirted with an all-time peak on Thursday while German bond yields held at the lowest levels in a year on bets the European Central Bank would unveil new stimulus measures next week.

ECB policymakers have opened the door to a rate cut, effectively charging banks to hold cash at the central bank overnight, and to a refinancing operation aimed at supporting businesses when its board meets on June 5.

Expectations of lower rates pushed German yields at the lowest levels in a year and on course to record a fifth consecutive month of declines.

The MSCI World Index, which tracks stocks from developed economies and has gained 1.4 percent since the last ECB policy meeting, was up 0.1 percent, a whisker away from an all-time high set on Wednesday.

The euro, which had fallen around 2 percent against the dollar over the same period, consolidated just above a three-month low of $1.3584.

“At least a rate cut is in the price (of the euro and stocks),” said Joost van Leenders, investment specialist for allocation and strategy at BNP-Paribas Investment Partners.

“I think markets expect a bit more, something directed at bank lending, such as purchases of asset-backed securities, and I don’t think that is fully discounted.”

Of 48 economists polled by Reuters this week 31 said the expected combination of a cut in the ECB’s deposit rate below zero and new long-term cash for banks to lend on to small and medium-sized firms would help boost lending in the euro zone.

European shares held firm near multi-year highs, with the pan-European FTSEurofirst 300 index hovering close to a near six-year peak reached earlier this week.

U.S. futures pointed to a slightly higher open on Wall Street.

“The trend is up, the trend’s your friend, but I wouldn’t buy up at these levels,” said Darren Courtney-Cook, head of trading at Central Markets Investment Management.

Gold extended losses to a third straight session to fresh 16-week lows, reflecting recent gains in the dollar and weak physical demand in top buyer China also weighed.

Brent crude rose back above $110 a barrel on signs of stronger demand from top oil consumer the United States, with a sharp drop in its gasoline stocks adding to recent data showing a strengthening economy.

(Additional reporting by Sudip Kar-Gupta; Editing by Toby Chopra)

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