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Friday, 04 December 2020

Global stocks at 3-month highs as euro underperforms

Efforts to contain euro zone debt crisis whet appetite for riskier assets as European currency slips slightly against the greenback

Reuters , Friday 28 Oct 2011
Views: 1156
Views: 1156

Global stocks advanced and headed for their best week in over two years on Friday, bolstered by EU leaders' efforts to contain the euro zone debt crisis which have stoked appetite for riskier assets, although the euro lagged the rally.

The single currency came under slight pressure after yields at the sale of ten-year Italian bonds hit a euro-era high above 6 per cent. Despite higher yields, demand was lower than previous auctions, underlining how cautious investors are on peripheral debt despite the EU rescue deal and pledges by Italy to reform.

With investors for the time being shrugging off the lack of detail in Thursday's anti-crisis measures in Europe, the region's shares extended the previous session's sharp rally.

The FTSEurofirst 300 index of leading European shares was up 0.15 per cent at 1,021.63 points in early trade. The index is up 11 per cent this month and is on track for its biggest monthly rise since April 2009.

Solid third-quarter sales from French car maker Renault also lifted the broader index. Banking shares, which have been battered by contagion fears from a possible Greek default, advanced 1.8 per cent, extending their 8.9 per cent surge on Thursday.

World stocks as measured by the MSCI index rose 0.4 per cent to 319.09 – having hit the highest level in nearly three months of 319.78 earlier in the day.

US stock index futures pointed to some signs that the stock market euphoria was flagging. Futures for the S&P 500,the Dow Jones and the Nasdaq 100 were all down 0.4 to 0.5 per cent.

Fredrik Nerbrand, global head of asset allocation at HSBC, said the lack of details out of the European summit was causing some discomfort to investors.

"I find it curious and if anything rather worrying that Italian bond yields are up to the level as they were before the summit, while the equity markets are completely decoupled from that," he said.

Euro zone leaders are now under pressure to finalise details of their plan to slash Greece's debt and strengthen the European Financial Stability Fund (EFSF), possibly through investment by emerging economies like China and Brazil.

The head of the fund, Klaus Regling, said on Friday he does not expect to reach a conclusive deal with Chinese leaders during a visit to Beijing.

Focus on G20 meet

Investors' focus is also shifting to a Group of 20 meeting next week in Cannes, southern France.

Edmund Shing, equity strategist at Barclays Capital, said stocks were likely to recover further next week ahead of the G20 summit on 3 and 4 November as investors would not want to bet against policymakers for now. But he advised investors not to chase the market too aggressively.

The euro slipped to $1.4170, taking a breather from a rally on Thursday which sent it to a seven-week high of $1.4248. It fell to near session lows of around $1.4158 after the Italian bond auction results.

"Although we're getting somewhere with EFSF, the Italian auction shows the market is sending signals that the crisis hasn't been solved by a long shot," said Stephen Gallo, head of market analysis at Schneider FX.

The dollar index was up 0.15 per cent after falling some 1.6 per cent, its biggest one-day fall since May 2009.

Analysts said with stocks looking to advance further, the sell-off in the dollar is expected to continue.

Brent crude slipped to around $111.09, but prices were on track to post a weekly gain.

Spot gold retreated from a one-month high of $1,751.99 at $1,736.69 an ounce, down 0.4 per cent from the previous close. But it was still on course for a gain of around 6 per cent from a week earlier, the biggest one-week rise in two months, according to Reuters graphics.

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