LONDON – A bounce in European shares, a tentative stabilization in oil and soothing sounds from ECB head Mario Draghi helped steady global markets on Thursday, after a torrid couple of days which has wiped trillions of dollars off asset values.
A 3-per cent slump in Chinese stocks had given Asia another bruising, there was relief like a more than 1 percent jump for London’s FTSE, Germany’s DAX and France’s CAC 40 as Draghi hinted at more rate cuts, pulled markets from their nosedive.
Draghi said the dramatic slump in oil and stocks prices this month had compounded the potential risks to the eurozone economy and that it would “review” its already record low interest and 1.5 trillion euro money printing program at its March meeting.
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“In this (volatile market) environment, euro area inflation dynamics also continue to be weaker than expected,” Draghi said.
“It will therefore be essential to review and possibly reconsider our monetary policy stance at our next meeting at the begining of March when the new staff macroeconomic projections become available.”
As nerves settled, U.S. futures prices flicked from red to green and Wall Street main S&P 500 and Dow Jones Industrial opened roughly 0.6 percent higher as traders brushed off a jump in unemployment benefit claims.
The TSX was up 41 at 11,884 by mid-morning. The Dow Jones was up 105 at 15,872 and the S&P 500 was up 9.9 at 1,869.
There seemed to be relief that oil prices, which are down a lot more than 25 per cent because the start of year and something from the main drivers from the cross-asset rout, were also steadier at $27.70 for Brent and $28.20 for U.S. benchmark WTI.
Draghi’s comments cut the euro to below $1.08 the very first time in two weeks and also to a 9-month low against Japan’s yen which has been boosted in recent weeks by its reputation as a safe refuge when in market turmoil.
Eurozone bonds rose too. German Bund yields, which move inverse to prices, fell for their lowest since May this past year because the recent strains on Portuguese, Italian and Spanish bonds also eased.
“Draghi is painting the picture you would expect,” said National Australia Bank strategist Gavin Friend said. “He is opening the door to help policy easing if the conditions require.”
In emerging markets the tensions remained intense, however. MSCI’s 23-country EM index notched a 6-1/2 year low and Russia’s rouble tanked almost 5 per cent at one point because it set an archive low from the dollar for a second day running.
The Krelin called the rouble moves “volatile” but said hello was “not collapsing.” A spokesman said President Vladimir Putin had no special meetings around the situation planned, though he had been kept regularly updated available on the market moves.
Investors were getting ready for the ECB’s 1245 GMT rate decision and also the 1330 GMT news conference with the bank’s head, Mario Draghi, where focus will be firmly on his view of this month’s market slump.
Chinese stocks, which together with oil have been the major trigger behind the worldwide rout, ended down 3 per cent after another volatile session there.
That consequently sent MSCI’s broadest index of Asia-Pacific excluding Japan to a different 4-year low. Japan’s Nikkei ended down 2.4 percent too, contributing to its 3.7 per cent plunge in the last session.
Shanghai-based investor director at Nanhai Fund Management Co, David Dai, said fears of a prolonged bear market were, nevertheless, overdone.
“With stocks having fallen a lot, a lot of the risk has been priced in and the other free-fall is quite unlikely, even though the possibility of a sustainable rebound is slim,” he said.
In the foreign currency markets, the swoon in the euro sent the dollar index, which tracks the U.S. unit against six from the world’s other biggest currencies, up 0.5 per cent.
The dollar also clawed back to 117.16 yen after hitting 115.97 on Wednesday being undermined by U.S. data.
? Thomson Reuters 2016