Euro, bond yields tumble as ECB hints at faster pre-summer buying

LONDON | BY MARC JONES

Tue May 19, 2015 7:27am EDT

Reuters

The euro tumbled on Tuesday and the region's stocks and bonds jumped after the European Central Bank signalled it would speed up its 1 trillion euro bond-buying programme for the next two months ahead of an expected summer lull.

World stocks were already testing all-time highs after another jump in Chinese stocks and a record close on Wall Street, and European markets shot up after top ECB policymaker Benoit Coeure talked of adjusting the bank's buying programme.

He said that the speed of the recent spike in bond yields, which has effectively wiped out the benefits of QE, was worrisome and that the ECB could "moderately" increase its buying in May and June, and possibly in September, to ensure it doesn't fall behind on its target over summer.

That pushed the euro EUR= back below $1.12 for the first time in a week and the FTSEurofirst 300 .FTSE jumped 1.2 percent as gains of as much 1.9 and 2 percent on Germany's DAX .GDAXI and in Paris .FCHI outpaced a 0.4 percent rise on London's FTSE .FTSE.

Bond yields, which move inversely to prices, also tumbled, with those on 10-year German Bunds DE10YT=TWEB down 7 basis points and Italian and Spanish equivalents down 9 basis points.

"There is a sense the comments from the ECB indicate a growing push back against the sell-off in bond markets that's been in place for the past month or so, and a push back against both euro strength and market volatility," said Manik Narain, a UBS strategist.

The moves were compounded as France's central bank governor Christian Noyer, also an ECB member, said the bank was "ready to go further if necessary" with its easing measures, and came amid another mixed set of European data.

Germany's ZEW sentiment survey deteriorated far more sharply than expected in May against the backdrop of bumpy financial markets.

A small rise in core euro zone inflation, meanwhile, was offset by the UK where it turned negative for the first time since the 1960's. That knocked sterling GBP=D4 as it fell for a third straight day against a broadly stronger dollar.

Fears of a Greek bankruptcy also rumbled in the background even as the country's top politicians vowed to conclude a cash-for-reform deal with its lenders.

"I think we are very close (to a deal) ... let's say in a week," Greek Finance Minister Yanis Varoufakis said in a TV interview on Monday night. "Another currency is not on our radar, not in our thoughts," he added.

German Chancellor Angela Merkel and Greek Prime Minister Alexis Tsipras may meet at a summit in Latvia this week, a German official told Reuters.

FINE CHINA

Wall Street, which closed at a fresh record high .SPX .DJI on Monday, was expected to add to the gains ESc1 when it reopens later. [.N]

China's surging stock market and a jump in the New Zealand dollar NZD=D4 after a rise in inflation, dominated attention overnight in Asia.

The CSI300 index .CSI300 surged 3.4 percent and the Shanghai Composite Index .SSEC rose 3.0 percent, as investors welcomed Beijing's 2015 guidelines for economic reform.

They prioritised a further opening of the country's capital market and a restructuring of state enterprises.

"You need a vibrant stock market to push forward economic reforms, whether it's about asset securitisation or industry consolidation," said Tian Weidong, analyst at Kaiyuan Securities in Xian. "With such a policy backdrop, investors are emboldened to stay in the market."

Japan's Nikkei .N225 also ended up 0.7 percent at a three-week high as the dollar .DXY nudged down the yen. JPY=

Expectations of more easing from the Bank of Japan kept the Japanese currency in check. The BOJ meets on Friday and is seen expanding its massive stimulus programme in October, according to most economists polled by Reuters.

Among commodities, oil prices sagged for a second day running as the stronger dollar took its toll alongside oversupply concerns triggered by a jump in Saudi Arabian exports.

U.S. crude CLc1 dropped about 0.6 percent in European trade to $59.04 a barrel, while Brent LCOc1 fell 0.8 percent to $65.75. [O/R]

Safe-haven gold XAU=, meanwhile, fell for the first time in six sessions, dropping about 0.2 percent to $1,220 an ounce. It had hit a three-month high a day early after disappointing U.S. economic data dented expectations of Federal Reserve rate hikes this year.

(Additional reporting by Sujata Rao, Editing by Hugh Lawson)