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GLOBAL MARKETS-Euro hits two-year low as Draghi wins balance sheet battle
November 6, 2014 / 9:47 AM / 3 years ago

GLOBAL MARKETS-Euro hits two-year low as Draghi wins balance sheet battle

* Euro at two-year low as Draghi wins battle against ECB
hawks
    * European stocks jump 1 percent, Wall Street starts flat
    * Dollar regains traction, commodities remain under pressure

    By Marc Jones
    LONDON, Nov 6 (Reuters) - The euro slumped to a two-year low
and shares jumped on Thursday after ECB chief Mario Draghi
fended off complaints about his leadership style and firmed up a
promise of 1 trillion euros to revive the struggling euro zone
economy. 
    Markets had been nervy ahead of the European Central Bank's
monthly policy meeting after Reuters reported that some national
central bank governors who set ECB policy were unhappy about the
Italian's secretive approach and erratic communication.
    But flashing a statement that strengthened the ECB's
commitment to reinflate its balance sheet towards 3 trillion
euros, its crisis-era level, Draghi said disagreements were just
part of central bank policymaking. 
    "It is fairly normal to disagree about things, it happens
everywhere," Draghi said, adding that ECB policymakers were all
prepared to take more policy action if necessary and that the
bank's staff would prepare the groundwork just in case.
    The removal of doubts about his power at the ECB and the
promise of another trillion euros of easing sent the euro 
tumbling to just above $1.24 and pushed European stocks 
up almost 1 percent after a morning in the red. 
    More reassuring U.S. jobs data also helped 
Wall Street turn around expectations of a lower start, with the
S&P 500 and Dow Jones Industrial holding at record
levels in opening trade.
    "It is all about those opening lines of the ECB statement,"
said National Australia Bank strategist, Gavin Friend. 
    "There was all the talk about disquiet in the Governing
Council about Draghi putting numbers on the balance sheet
expansion, and they have done exactly that (given a figure) in
the second paragraph.
    "This is a humbling experience for the Bundesbank. I have
not seen Draghi enjoy himself as much as he has today for a long
time," Friend added.
    As ECB policymakers met in Frankfurt, the OECD had warned
that the euro zone remained a stubborn weak spot in the global
economy and called on the ECB to live up to Draghi's promise in
2012 "to do whatever it takes" to preserve the currency union.
 
    With the common currency at a 26-month low, peripheral euro
zone bonds yields also fell as traders wagered that Draghi will
now be able to steer through substantial policy easing.    
    And with markets having picked themselves up after last
month's beating, and political hurdles like the U.S. mid-term
elections out of the way, there was a general feeling that the
upward trend in stocks and the dollar would continue.
    "The market feels great," said Nick Lawson Managing Director
in Global Markets Equity at Deutsche Bank.
     
    
    COMMODITY ROUT
    The combination of Draghi's aggressive message and a bigger
than expected fall in the number of Americans applying for
unemployment benefits put the dollar back on the front foot and
near a four-year high against its currency
basket.  
    The Bank of England also met on Thursday and left its record
low rates in place. There are signs the BoE is edging towards a
first post-crisis rate hike, but a recent slowing of economic
momentum has cooled expectations it will move soon.
    In Asian trading earlier, the region's shares and commodity
currencies had stumbled as the ongoing rout in oil, copper,
gold, silver and other key commodities trumped cautious optimism
about the strengthening U.S. economy.
    Brent oil, which has plunged 30 percent since June, remained
near a four-year low at 82.30 a barrel. Copper,
a barometer of global demand, eased 0.3 percent to $6,618.25 per
tonne, while gold and silver steadied after
slumping to 4-1/2-year lows.    
    MSCI's broadest index of Asia-Pacific shares outside Japan
 fell as much as 0.5 percent before largely
recovering, led by declines in Australia and China, and Tokyo
 ended down 0.9 percent as traders booked profits from
their 8-percent-plus rise over the past three days.
    The Australian dollar, often used a liquid proxy for China,
to which it is heavily exposed, flirted with Wednesday's
four-year low of $0.8606 while the Canadian dollar
stood near five-year lows of C$1.1466 to the U.S. dollar
.  
    Many other commodity exporters took an even bigger hit.
    The Brazilian real remained within touching distance of a
six-year trough hit last week and Russia's rouble
 crashed to another record low a day after the
central bank effectively abandoned daily inventions. 
    Reflecting the selloff, MSCI's emerging market index
 is now at its cheapest level since 2005 in comparison
to the U.S. S&P 500. Almost 30 percent of emerging markets are
oil exporters and many others depend on mining or other
commodities.
    "While I would put about a 70 percent chance that the global
economy will chug along, the fact that two of the BRICs bloc are
facing problems does raise some caution," said Soichiro Monji,
chief strategist at Daiwa SB Investments.

 (Additional reporting by Hideyuki Sano in Tokyo; Editing by
Catherine Evans)

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