By Marc Jones
LONDON (Reuters) – World markets got another shot of energy on Thursday as the European Central Bank (ECB) ramped up its Pandemic Emergency Purchase Programme (PEPP) to 1.35 trillion euros.
European equities [.EU], oil [O/R] and euro markets [/FRX] had been lower before the ECB said it would raise the programme from 750 billion euros, extend it until June 2021 at the earliest and pledged to reinvest the proceeds until at least the end of 2022. [/FRX]
This was beyond what most analysts had predicted and hot on the heels of a huge domestic support package from Germany on Wednesday, hoisted the euro back above $1.1250 and the main euro zone bourses back into positive territory. [.EU]
“This reflects the “we will do what it takes” mentality of central bankers,” said Neil Birrell, Chief Investment Officer at Premier Miton, adding it was “likely to keep markets happy.”
Italy led a fall in government bond yields with 10-year borrowing costs tumbling more than 15 basis points to 1.40% IT10YT=RR — their lowest level since late March.
Safe-haven German 10-year bond yields eased away from their highest since mid-April at -0.36% <DE10YT=RR>. The yield on the benchmark U.S. Treasury 10-year <US10YT=RR> also drifted down after a 6 bps rise on Wednesday to 0.77%.
This was the largest one day rise in rates since May 18, and the highest closing level since April 14.
The euro’s jump caused the dollar to wobble. It had risen around 0.3% <=USD> against a basket of currencies before that point and had looked on course for its first rise in a week.
Market optimism about the post-COVID 19 recovery has dented the dollar’s safe-haven appeal as have widespread protests in the U.S. over the death of a black man in police custody.
The U.S. currency began strengthening in overnight trading but picked up more sharply in Europe to push the Japanese yen to a two-month low of 109.150. <JPY=EBS.>
Riskier currencies had fallen too. The Australian dollar dropped as much as 0.5% to $0.6884 <AUD=D3> after retail sales there suffered a historic plunge, though the country’s fourth stimulus package had helped shares make more gains <.AXJO>.
Hong Kong’s stock market <.HSI> had still been hobbled by concerns about Beijing’s new national security law. Chinese airline shares had also drooped after President Donald Trump’s administration had said it would bar Chinese passenger carriers from flying to the United States from June 16.
Oil prices, which have been on a tear in recent weeks, also dipped as doubts about supply cuts by major producers began to creep back in. [O/R]
Saudi Arabia and Russia, two of the world’s biggest oil producers, have agreed to support an extension into July of the 9.7 million barrels per day (bpd) supply cuts backed in April.
But they failed to agree on holding an OPEC+ meeting on Thursday to discuss the cuts, with OPEC sources saying it would be conditional a deepening of cuts by countries that have not complied with their targets so far.
U.S. crude <CLc1> fell as much as 2% to $36.53 a barrel, while the ECB helped Brent crude <LCOc1> temper falls. It was last at $39.65 per barrel, having climbed above $40 a barrel for the first time since early March on Wednesday.
Spot gold <XAU=> rose 0.25% to $1,701.28 an ounce early on Thursday after losing 1.6% on Wednesday.
(Reporting by Marc Jones; Editing by Alexander Smith)