GLOBAL MARKETS-Euro, shares climb after ECB cut, Draghi awaited

Thu May 2, 2013 8:29am EDT

* ECB cuts rates 25 bps as expected
    * Euro hits new 2-month high, European shares firm
    * Wall Street expected to edge higher
    * Oil rebounds back to $100 a barrel

    By Marc Jones
    LONDON, May 2 (Reuters) - The euro and European shares rose
on Thursday after the European Central Bank cut rates to an
all-time low and investors waited to see whether it has plans
for additional, less conventional support.
    The cut was the ECB's first move in 10 months and took its
main rate down to 0.5 percent from 0.75 percent.
    It came as fresh data showed that euro zone manufacturing
continued to deteriorate last month.
    To avoid the complication of charging banks who have spare
cash in the system, it left its deposit rate, which has become a
truer reflection of its policy stance since it flooded markets
with ultra-cheap cash, unchanged at zero, rather than negative.
    European shares and the euro both rose,
while benchmark German bonds fell after the cut, but as the
initial impact wore off attention turned to ECB chief Mario
Draghi's post-meeting news conference at 1230 GMT to see what
else, if anything, the central bank has up its sleeve.
    "In our view, the balance of risks is tilted towards
uncomfortably low inflation and the ECB should take further
steps going forward to ease financial conditions," said ABN Amro
economist Nick Kounis.
    "In today's press conference, we think Mr. Draghi will hold
out the prospect of an announcement about a scheme to help to
ease financing conditions for SMEs (small and medium sized
firms) as soon as the June meeting."
    U.S. stock index futures   added to gains
after the ECB move, pointing to another firm start on Wall
Street after this week's record highs for the S&P 500.        
    With most other major central banks aggressively pumping
stimulus into their economies, investors suspect the ECB could
fall behind the curve unless it comes up with additional
support. 
    That assessment has been pushing up the euro over the last
month while European shares have underperformed their peers in
both Japan and the United States.
    By 1215 GMT, the euro was back above $1.32 at a new two
month high. Top European shares on the FTSEurofirst 300 
were also back in positive territory having spent most of the
morning in the red.
    London's FTSE 100 was flat but Paris's CAC-40
 and Frankfurt's DAX were up 0.2 and 0.4 percent
respectively.
  
    
    DATA DISAPPOINTMENTS  
    Fresh data from the euro zone had supported the need for a
cut, as manufacturing PMI numbers showed France, Italy and Spain
all saw continued falls in production last month.
 
    "There is nothing here to suggest that manufacturing will
turn the corner and stabilise any time soon, putting greater
onus on policymakers to act quickly to reinvigorate growth,"
said Chris Williamson, chief economist at survey collator
Markit.   
    Weak manufacturing data out of China overnight had already
reinforced doubts over the health of the global economy as did
weaker-than-expected ADP jobs figures from the U.S. in the
previous session. 
    The HSBC China Purchasing Managers' Index dropped to 50.4 in
April from March's 51.6 and a tad below a flash reading of 50.5,
as new export orders fell for the first time this year.
 
    That had weighed on Australia's shares and currency while
also hitting Chinese shares and oil and copper 
prices although commodities market were seeing a bounce as U.S.
trading drew into view.  
     Oil rose back above $100 a barrel as some investors saw
this week's price slide as overdone, although ample supply and
concerns about the outlook for demand due to shaky economic
growth limited the rally.        
    In Europe's bond markets, there was limited reaction to the
ECB cut. 
    Demand for the already ready rock-bottom yields offered by
German government bonds dipped slightly while Italian
and Spanish bonds, which have been the biggest beneficiaries of
ECB support, remained at their strongest levels since 2010.
 
    "The market reassessed the global economic environment with
lower growth and slower inflation so there was some adjustment
with regards to central bank policy and this is supporting both
core and peripheral bonds," said Patrick Jacq, a strategist at
BNP Paribas. 
    "Having said that, when you see the Bund (yield) in the 1.20
(percent) area it's becoming very expensive on a risk/return
analysis ... so it makes sense to be invested in other paper,
semi-core or peripherals."
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Comments (1)
mixup wrote:
Do you really believe it’s going to make a difference? Wake up, Bubba!

May 02, 2013 8:46am EDT  --  Report as abuse
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