LONDON — The euro steadied and European shares and bonds rebounded on Friday after being savaged on Thursday, when the European Central Bank unveiled a huge new stimulus plan but signalled it was unlikely to cut its negative interest rates further.
Markets were starting to focus on the positive features of the ECB policy package, with surges to 2016 highs for both US oil prices and China’s yuan also boosting confidence.
The pan-European FTSEurofirst 300 index jumped 2.3% after falling 1.8% in the previous session, although it and MSCI’s 46-country All World index were on course for their first weekly falls in a month.
Euro traders were getting their breath back after a near four cent move for the currency following the ECB’s announcements.
The euro slipped back to $1.1105, having climbed from a trough of $1.0820 to a peak of $1.1217 on Thursday, a vicious move that would have stopped-out both bulls and bears and left everyone nursing losses.
"The markets are doing alright today," Societe Generale FX strategist Alvin Tan said. "The ECB did deliver easing for sure but it was a mixed message.
"It fits with our broader view that for the euro — and the yen, for that matter — to drop durably lower, the (US Federal Reserve) will have to raise its rates further." Bond markets were also stabilising, with German Bunds down four basis points at 0.27% in early trade.
At one point on Thursday, German 10-year yields doubled from a low of 16 basis points to a peak of 32 basis points, a giant move for a benchmark long-term bond.
ECB resident Mario Draghi’s suggestion there would be no further interest rates cuts overshadowed the euro zone central bank’s bold easing package, prompting criticism that he had once again botched his communication.
He was quick to note that new facts could change the outlook, and emphasised his willingness to adopt other radical measures, but by then the damage was done.
Against the yen, the euro hit a three-week high of ¥126.86 on Friday, before regressing to a flat ¥126.40.
The dollar bounced back after coming off sharply as the risk mood darkened. It was last up 0.5% at ¥113,74, though still below Thursday’s pre-ECB peak of ¥114.45.
Against a basket of currencies, the dollar added about 0.6% to 96.654, but it was still down 0.8% for the week, having shed 1% on Thursday.
Many analysts considered the market reaction rather perverse, given that the ECB’s actual steps were very aggressive.
As well as cutting all its main interest rates, the bank lifted its asset-buying programme by €20bn a month, expanded the assets to include nonbank corporate debt and said it would effectively pay banks to take its cash to lend on.
In commodity markets, the rise in the dollar was starting to weigh on gold, which had earlier made a 13-month top at $1,282.51 an ounce. It was last at $1,262.98, on track to gain almost 1% this week.
Oil prices also edged higher after dropping on Thursday, extending the recent run of see-saw trading.
Brent added 1.7% to $40.73 a barrel, while US crude gained 2.2% to $38.67 to hit its highest level of the year. Both of the benchmarks are now up roughly 50% since their mid-January lows.
Europe’s oil and gas index rose 1.9% and the STOXX Europe 600 Basic Resources index was up 2.5%, the top sectoral gainer, as prices of major industrial metals also rose sharply.
Glencore, Anglo American and Rio Tinto rose 3% to 4%. Overnight, Asian shares had risen as the region also secured weekly gains, contrasting with most of the rest of the world.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.1% on the day and the week, while Australia ended 0.3% up. Japan’s Nikkei erased earlier sharp losses and ended 0.5% up, though still fell 0.4% over the week.
Chinese shares lagged the region, weighed down by the banking sector, as Beijing’s plan to allow debt-to-equity swaps by commercial lenders was viewed by some investors as being largely negative.
The blue-chip CSI300 index fell 0.6%, while the Shanghai Composite Index was down 0.7% in afternoon trade.
China’s central bank underlined its commitment to a firm yuan by fixing the currency at the high for this year.