ECB prepares some sub-zero relief for wilting Europe

Business

LONDON (Reuters) – Euro and bond yields wilted on Thursday as a slump in German business confidence piled the pressure on the European Central Bank to push interest rates even deeper into sub-zero territory later.

FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, July 24, 2019. REUTERS/Staff/File Photo

With the chance of a ECB rate cut priced at about 50-50, the euro was at a two-month trough, German Bund yields were slipping back toward record lows and Europe’s main stock markets shuffled higher.

New German data added to the call for ECB action as it showed business morale there had hit its lowest level since April 2013.

The ripple effect saw neighboring Switzerland’s 50-year government bond yield go negative, meaning none of its bonds now offer buyers any interest.

“The weak macro data this week means the ECB will be forced to act sooner than later,” said Daniel Lenz, a rates strategist at DZ Bank in Frankfurt.

“The German economy is navigating troubled waters,” Ifo President Clemens Fuest added, saying companies there were increasingly concerned about the outlook for their businesses.

Overnight it had been a happier story. Wall Street’s S&P 500 and Nasdaq had both hit record highs after reassuring comments from Texas Instruments about global chip demand blunted the impact of weak earnings from Boeing and Caterpillar.

Facebook also announced forecast-beating revenues, sending its shares higher in extended trading after the closing bell.

The social media firm’s stock has now surged over 56% so far this year, despite warnings on future revenue growth from new data privacy rules and forthcoming privacy-focused product changes.

Asia then managed to overcome a cautious start to finish modestly higher.

Japan’s Nikkei touched a near three-month high though Australia stole the glory as it ended near a 12-year peak after its central bank chief had stressed interest rates could continue to fall.

Chinese blue-chips also added 0.5% in Shanghai, as investors there looked with hope to a face-to-face meeting between top U.S. and Chinese negotiators next week, even if there are few signs that it will produce real progress in the two countries’ trade war.

“Lower rates are generally, in a traditional, mechanical way, good news for equity prices,” said Jim McCafferty, head of equity research, Asia ex-Japan, at Nomura.

JOHNSON JITTERS

Away from the ECB and the euro, the dollar was down fractionally against the year at 108.07 and the dollar index which tracks the greenback against six major currencies, was a barely budged 97.757.

Sterling was broadly flat too at $1.2475, after falling for several sessions as market participants feared the looming possibility of a no-deal Brexit under Britain’s new prime minister, Boris Johnson.

“If talks between the UK and EU break down, the GBP could see further losses,” said Steven Dooley, currency strategist at Western Union Business Solutions.

In commodities, U.S. crude added 20 cents to $56.08 per barrel while Brent crude climbed 15 cents to $63.33.

The advance came amid Middle East tensions and a big fall in weekly U.S. crude stocks, although the gains were curbed by a frail demand outlook and increasing signs of slowing global economic growth.

Spot gold slipped 0.2% to $1,423.09 an ounce, short of last week’s peak of $1,452.60.

Additional reporting by Saikat Chatterjee in London and Swati Pandey in Sydney; Editing by Jon Boyle

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