LONDON – The prospect of yet more European Central Bank stimulus pushed world stocks to a two-month high, the euro to a two-month low and left investors paying for the privilege of owning short-term Italian and Spanish bonds.
European shares and bonds kept climbing on Friday after soaring on Thursday's message from ECB chief Mario Draghi that the central bank was ready to adjust "the size, composition and duration" of its QE program.
It was set to be the fourth straight week of gains for MSCI's 45-country All World index .WORLD as the euro's nose dive back to $1.11 .DCY put the dollar on course for its biggest weekly rise against the major currencies since late May.
For investors hoping for a positive jolt to the lackluster global economic growth outlook, it was shaping up to be the second straight week of near 4 percent falls in oil prices LCOc1, which were edging higher on Friday.
"Draghi has come out and kitchen-sinked the whole thing, everything is now on the table," said Gavin Friend, a strategist at National Australia Bank in London.
"You combine what the ECB is now saying with (the fact) that the Fed is not going to be going aggressively and that the Bank of Japan is going to want to get involved, then you say 'Blimey!'"
The pan-European FTSEurofirst 300 index .FTEU3
rose 1 percent, building on a 2.1 percent gain in the previous session, while the euro zone's blue-chip Euro STOXX 50 index .STOXX50E
advanced by 1.2 percent.
Bond market moves were perhaps the most eye-catching though. Italian IT2YT=TWEB and Spanish two-year government bond yields both turned negative for the first time ever, meaning that investors now pay to hold them rather than receive interest on them.
Greece's bond 'curve' was also close to normalizing, having been distorted for months in the wake of a political crisis.
Investors were spurred on by the prospect not only of the ECB increasing its bond buying but also of it cutting one of its main interest rates, the deposit rate, even further into negative territory.
BIG WEEK AHEAD
Asian markets also roared their approval at Draghi's bold moves overnight.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 1.7 percent, and Japan's Nikkei .N225 closed 2.1 percent higher to end the week up almost 3 percent. The Bank of Japan holds a meeting next week and markets are betting on more hints of additional stimulus there too.
The Shanghai Composite index .SSEC added 1.4 percent. Next week will also be a major one for Chinese markets with its government set to meet on its next five-year economic plan.
"Investors and traders are buying the idea of expected action out of the Bank of Japan and the ECB," said Ben Le Brun, market analyst at trading platform provider optionsXpress.
The euro saw another wobbly start having seen its largest one-day percentage drop against the dollar in nine months on Thursday.
The common currency was last at $1.1108, after earlier falling to a two-month nadir of $1.1072 EUR=. As a result the dollar was just off a two-month high, with it also down slightly on the day against the yen at 120.34 yen. JPY=
The Federal Reserve will meet next Tuesday and Wednesday. Its policymakers opted to hold interest rates steady last month, amid concerns that a slowing global economy, particularly in China, could pose risks to the U.S. economic outlook.
The Chinese central bank's injection of 105.5 billion yuan into 11 banks via its medium-term lending facility this week, combined with possible additional stimulus from the ECB, "may give the Fed more reason to raise rates by year end," said Chris Brankin, chief executive officer of online trading platform TR Ameritrade Asia in Singapore.
But another disappointing U.S. job report next month after October's weaker-than-expected growth "might be cause for further pause," he said.
Crude oil prices edged up, taking heart from the improved risk sentiment but still pressured by concern about high U.S. crude inventories and the stronger dollar.
Brent LCOc1 climbed 0.7 percent to $48.42 a barrel, but was on track for a weekly loss of almost 4 percent. U.S. crude CLc1 added 0.4 percent to $45.60 but was down 3.7 percent for the week.
The stronger greenback also weighed on spot gold prices. It XAU= was last trading at $1,168.65 an ounce after touching a nine-day low of $1,162.50 overnight, and was down 0.7 percent for the week. –Reuters