European markets rise on expectations of ECB action

European stocks rose today and were on track for their biggest weekly gains since mid-February, while bond yields including Ireland’s held near record lows as recent weak data increased expectations for central bank action to lift the economy.

The euro, which took a hit yesterday after data showed Europe’s powerhouse economy Germany unexpectedly contracted in the second quarter, edged up against the dollar today but remained near nine-month lows.

“Given the recent data flow I guess some market players consider there is a high probability of QE in Europe,” said Gilles Moec, an economist at Deutsche Bank in London. Investors also kept a wary eye on the progress of a Russian aid convoy halted on the border with Ukraine.

Comments perceived as conciliatory from president Vladimir Putin helped lift Wall Street yesterday, along with weak jobs data suggesting the Fed would not raise interest rates soon.

Yesterday, the pan-European FTSEurofirst 300 index rose 0.4 per cent in early trade, set for gains for the fourth time in five days, helped by the world’s biggest miner, BHP Billiton saying it could spin off assets.

The index is up 2.2 percent for the week, a performance not matched since the week ending February 14th.

Sub-par economic data, which also showed the entire euro zone stagnated in the three months to end-June and inflation was just 0.4 per cent in July, has helped drive German 10-year bond yields to record lows below 1 per cent this week and led investors to raise their bets on the European Central Bank launching a large-scale bond-buying programme at some point.

Ten-year German yields, which have also been pushed lower by investors concerned about conflict in Ukraine and the Middle East seeking a safe assets, were all but flat on Friday at 1.013 percent, having briefly dipped below 1 percent the previous day, according to traders. Yields have fallen for six weeks in succession.

The euro was up 0.1 per cent at $1.3373 but still close to last week’s nine-month low of $1.3333 and on track to end lower for the week.

Earlier, Asian equities made modest gains. MSCI's main index of Asia-Pacific shares outside Japan added 0.3 per cent. Tokyo's Nikkei index ended flat but with a 3.7 per cent gain for the week, its biggest since mid-April.

US stocks rose yesterday, with the S&P 500 index ending 0.43 per cent higher. Traders said Mr Putin’s remarks that Russia would stand up for itself but not at the cost of confrontation with the outside world, had eased pressure on the market.

Reuters