Thursday 18:00 GMT. Equity prices continued their steady grind higher and the yen plumbed fresh lows against the dollar and the euro, although the closure of US markets for Thanksgiving left European investors lacking a clear focus.
Wall Street’s advance on Wednesday to record levels, following a broadly well-received batch of economic figures, helped push Tokyoequities sharply higher. The Nikkei 225 rose 1.8 per cent to its highest close in nearly six years.
Europe saw moderate follow-through buying, and the FTSE Eurofirst 300 index gained 0.4 per cent. The FTSE All-World index was poised for its best finish since Christmas 2007.
Tokyo’s strength was also a reflection of the yen’s persistent weakness as carry traders continued to sell the low-yielding Japanese currency in order to fund purchases of higher-yielding assets.
The dollar touched a fresh six-month peak against the yen of Y102.37, while the euro touched Y139.18 – the highest since June 2009. The single currency also climbed to a one-month high against the dollar of $1.3617, before easing back to trade 0.2 per cent higher at just above $1.36.
The euro has shown resilience in the wake of the unexpected recent cut in eurozone interest rates, particularly given that the European Central Bank has come under pressure to be even more accommodative.
The ECB is due to hold a policy meeting next week.
“The cut in rates has not markedly relieved the pressure on the central bank to take additional action to support what remains a very fragile economic recovery and head off deflation,” said Jonathan Loynes at Capital Economics.
“[Consumer price inflation] is likely to remain a long way below the ECB’s 2 per cent ceiling and there are good reasons to expect the downward trend to continue over the coming months. One of those is the disinflationary influence of the strong euro.”
Analysts at Daiwa Capital Markets said that money supply data released on Thursday also illustrated why the central bank was likely to maintain its easing bias.
“M3 growth eased in October to 1.4 per cent, the weakest in two years and well below the rates of around 3.5 per cent that the ECB considers to be broadly consistent with its price stability objective,” Daiwa said.
Analysts also highlighted the credit crunch being faced by companies, with loans to non-financial corporations falling 3.7 per cent in the year to October.
“While we don’t believe a new rate cut is imminent, ideas to take specific measures to boost credit growth – for example a conditional longer-term refinancing operation mimicking the British Funding for Lending Scheme – will most probably pop up again during the next meeting of the [ECB’s] governing council.”
Indeed, the Funding for Lending Scheme was back in the spotlight on Thursday. The Bank of England said banks would cease to receive subsidised funding to encourage mortgage lending and personal loans next year, in what analysts said was an attempt to cool the UK housing market.
“While Bank of England governor Mark Carney said that the bank does not see an immediate threat to financial stability coming from the housing market, it is concerned about how matters could develop if action is not taken,” said Howard Archer, chief UK economist at IHS Global Insight.
“This is a hugely sensible and justifiable move taken by the Bank – even allowing for the fact that mortgage activity is still not that elevated compared to long-term average levels.”
Sterling responded by climbing to an 11-month high against the dollar of $1.6380, although it subsequently edged back to $1.6340, up 0.3 per cent on the day.
The yield on the 10-year UK government bond fell 3 basis points to 2.74 per cent.
In the absence of any action in the US Treasury market, the German Bund yield edged 1bp lower to 1.70 per cent, in spite of stronger-than-expected German “flash” consumer price data and an improvement in the latest EC economic sentiment survey.
Meanwhile, gold edged up from a four-month low as the dollar suffered against the euro and sterling. The metal was $7 higher at $1,243 an ounce.
Among industrial commodities, Brent oil slipped 30 cents to $110.01 a barrel, while copper finished unchanged on the London Metal Exchange at $7,020 a tonne. Aluminium also had a steady session after hitting a fresh four-year low of $1,744 a tonne in early trade.
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