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* Christine Lagarde holds first news conference as ECB chief
* Euro, euro zone bank shares edge higher
* Govt bond yields off lows
Dec 12 (Reuters) - Euro zone bond yields and bank shares rose on Thursday and the euro briefly rallied after European Central Bank’s new president, Christine Lagarde, said the bloc was headed for a slow and steady economic recovery over the coming year.
Speaking at her first news conference, Lagarde said that geopolitics, protectionism and vulnerabilities in emerging markets had skewed risks to the downside, but those risks were less pronounced than before.
“I think the market is taking the fact that she’s noncommittal on policy as a shift towards the hawks - at least the hawks won’t be as suppressed under Lagarde as they were under (former chief Mario) Draghi,” said Antoine Bouvet, senior rates strategist at ING. “This explains the selloff we’re getting in Bunds now.”
Germany’s 10-year Bund yield touched a one-week low at -0.34% after Lagarde said the outlook for inflation remained subdued.
But the yield soon rose, alongside a broader move in euro zone bond yields -- a move that gathered pace after U.S. President Donald Trump said the United States was getting “very close” to a trade deal with China.
Italy’s 10-year bond yield pulled away from two-week lows hit earlier in the day at around 1.27%, hurt also by Prime Minister Giuseppe Conte saying Italy wouldn’t agree a reform of the euro zone’s bailout fund unless it was part of a broader package
“Lagarde did suggest that while risks are still skewed to the downside, they are not as acute as before, which justifies the slight upward shift in yields,” said Chris Scicluna, head of economic research, at Daiwa Capital Markets.
“But really there’s not a great deal to be interpreted from what she said, with the latest economic forecasts little changed.”
The euro rose to a five-week high of $1.11540 after Lagarde started speaking. Against the pound, it rose to an eight-day high of 84.89 pence. It fell back after the Trump comments.
Banking shares rallied and were last up 0.8% as investors took comfort from Lagarde’s comments that she was aware of the side effects of the ECB’s unconventional monetary policy.
Lagarde said that the ECB expects to begin in January a strategic review of how it does business and to conclude it by the end of 2020.
She added that there was “no pre-conceived landing zone” for the review, which analysts say will set the tone for monetary policy in the years ahead.
Analysts said that Lagarde stressed the need to find consensus on a board deeply split by the September decision to resume asset purchases.
“Lagarde will not make her own judgment and prevail over the governing council .... she will presumably give hawks more leeway to express their views, so the reaction from the ECB could be understood a little bit more hawkish by the market,” said ING’s Bouvet.
Reporting by the London markets team; writing by Dhara Ranasinghe; editing by Larry King
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