Europe’s push to end debt crisis lifts shares and euro

Richard Hubbard London

WORLD shares held near three-month highs and the euro clung to gains above $1.24 yesterday afternoon after investors drew encouragement from signs that Europe was edging towards resolving its debt crisis even as the economic impact worsened.

Global markets have enjoyed a strong run this week after the European Central Bank (ECB) promised to buy bonds to ease the pressure on Spain and Italy, albeit under strict conditions that have yet to be fully worked out.

US stocks opened higher, while gold inched up towards $1 615 (R13 161) an ounce and Brent crude futures shot past $110 a barrel partly due to worries about supply.

However, a sharp drop in shares of Standard Chartered after New York’s bank regulator threatened to tear up its state banking licence helped to hold back gains in European stocks.

“Hopes of action in Europe are certainly still persistent,” said Keith Bowman, an equity analyst at Hargreaves Lansdown. “There is still an element of relief coming through from the US employment figures,” he added, referring to last Friday’s better-than-expected jobs data.

The cautious hopes that Europe’s three-year crisis was edging towards a solution lifted the MSCI world equity index 0.2 percent to 321.14 points, near its highs hit in May.

Share markets have enjoyed renewed demand from investors over the past three months as high-rated government bond returns have fallen sharply due to demand from investors seeking safety from the troubles in Europe, increasing the relative attractiveness of blue chip stocks.

European shares had a choppier day after it emerged that the powerhouse German economy had taken a bigger hit than expected in June due to weakness across the euro zone.

German industrial orders fell 1.7 percent on the month, after contracts from the euro zone fell by 4.9 percent.

The FTSEurofirst 300 index of top European companies managed a slight gain of 0.2 percent to 1 088.16 points by midday in Europe, while the Euro Stoxx 50, the index of blue chip euro zone stocks, was up 1.1 percent.

European banking shares, which had rallied more than 12 percent over the previous nine days, were also weighing on the broader index as more allegations hit the sector.

The euro was still basking in the glow of ECB president Mario Draghi’s promise that the central bank was “ready to do whatever it takes to preserve the euro”, and the expectations it would intervene to help Spain and Italy.

In the debt market the optimism engendered by the ECB was easing pressure in the Spanish and Italian bonds but, after strong gains since Draghi’s comments last Thursday, these were beginning to taper off.

However, investors remain cautious about the next steps, as ECB action can be triggered only when a country decides its finances are in such bad shape that it needs a bailout, which could arouse new fears about the whole region. – Reuters