While you were sleeping: ECB, China bets lift mood

Friday 27th November 2015

European equities climbed, bolstered by bets the European Central Bank will boost its monetary stimulus next week to stoke the region’s growth and inflation, while a rally in metals including zinc and copper also added to the positive sentiment.

US markets were closed on Thursday for the Thanksgiving holiday.

Europe’s Stoxx 600 Index ended the session with a 0.9 percent gain from the previous close. It’s at the highest level in three months. Bonds in the euro-zone also advanced, while the euro weakened ahead of the December 3 meeting of ECB policy makers.

“We expect the ECB will cut the deposit rate by more than the market expects next week,” Mansoor Mohi-uddin, senior markets strategist at Royal Bank of Scotland Group in Singapore, told Bloomberg. “This should keep the euro a sell on rallies into the meeting and allow the euro to test US$1.05 if the ECB meets our expectations.”

While central bank policy makers in the euro zone are expected to add stimulus, their US Federal Reserve colleagues are predicted to lift their target interest rate at their December meeting. That might push the euro to parity with the greenback in 2016, some anticipate.

"Ultimately, I think the ECB will be aggressive and that divergence in policy with the United States must imply a weaker euro," Chris Scicluna, head of economic research at Daiwa Capital Markets in London, told Reuters. "The question now is how far can we go, and as the Fed tightens, euro/dollar parity is looking likely by the second quarter of next year."

The UK’s FTSE 100 Index rose 0.9 percent, France’s CAC 40 Index advanced 1.1 percent, while Germany’s DAX Index climbed 1.4 percent.

Helping drive gains in equities were shares of miners including Glencore and Anglo American amid reports that China’s government is preparing to boost its strategic reserves of nickel, zinc, and aluminium in an effort to bolster depressed prices. China is the world’s largest consumer of base metals.

China’s largest copper and nickel suppliers plan to meet this week to weigh their response to the lowest prices in years, Bloomberg reported, citing unnamed people with knowledge of the matter. The London Metal Exchange’s index of six industrial metals is on track for its largest annual drop since 2008.

Copper rallied more than 4 percent, zinc added more than 2 percent, while aluminium rose the most since early October.

“We believe metals have bottomed out,” John Meyer, an analyst at SP Angel in London, told Bloomberg. “We are optimistic for a restart of infrastructure projects in China and the benefits of fiscal improvements feeding through. We’re looking forward to some recovery next year.”

BusinessDesk.co.nz

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