Russia-Ukraine deal, Swedish quantitative easing eclipse Greek doubts
(Reuters) – A ceasefire between Russia and Ukraine and a surprisingly aggressive stimulus from Sweden’s central bank injected life into world markets, which had been numbed by a stalemate between Greece and its euro zone creditors.
Europe reversed opening losses, also taking heart from a broadly positive raft of reports on one of the busiest days in the corporate earnings calendar.
Even Greek stocks surged — bank shares jumped 10 percent — as investors ignored the uncertainty after seven hours of talks in Brussels between Greece and its creditors failed to produce so much as a joint statement on the next steps.
Investors instead pinned their hopes on a deal being struck on Monday. They also took a cue from the ceasefire between Russia and Ukraine that will take effect from Feb. 15, and the Swedish Riksbank’s decision to cut interest rates below zero and buy government bonds.
“It’s no surprise to see European stocks trade higher on the back of the ceasefire agreement between EU leaders, Ukraine and Russia. This is giving stocks a fillip to push higher,” said Josh Raymond, senior strategist at City Index in London.
“It’s estimated that in 2014, Russian trade sanctions cost the German economy as much as 8 billion euros, with trade to Russia down by around 20 percent. That’s why we’ve seen such a positive reaction in German stocks to the news.”
The ceasefire deal came shortly after the International Monetary Fund announced a new four-year funding program for Ukraine that will total $40 billion.
The FTSEuroFirst index of 300 leading shares .FTEU3 rose 0.6 percent to 1492 points, France’s CAC40 .FCHI rose 0.9 percent to 4720 points and Germany’s DAX .GDAXIjumped 1.5 percent to 10915 points, closing in on its 10984 record high.
Stock market investors also cited encouraging reports on one of the busiest days of the European earnings calendar. Shares in Swiss bank Credit Suisse and French car-maker Renault were among the leaders, both rising 7 percent
Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.5 percent on a broad decline in markets from Australia to China.
BOE RATE HIKE THIS YEAR?
Britain’s FTSE 100 .FTSE was flat on the day at 6821 points, underperforming its European peers as investors put a hawkish interpretation on the Bank of England’s quarterly inflation report.
The Bank raised its UK growth and inflation forecasts, although it left the door open to cutting interest rates and even expanding its quantitative easing bond-buying program if necessary
Sterling rose 0.75 percent against the dollar to $1.5363 GBP=, its highest in over a month.
“With the (Bank) fairly relaxed about the prospect for deflation, we still think there is a reasonable chance of a rate hike before the end of this year,” said Vicky Redwood, chief UK economist at Capital Economics.
The Australian dollar fell 0.5 percent to $0.7685 AUD= after weak jobs data increased prospects for further easing by the Reserve Bank of Australia. Unemployment rose to 6.4 percent in January, the highest since mid-2002.
The surge in equities forced a rethink in bonds. Investors had sought the safety of “core” government bonds, pushing the yield on German two-year and five-year debt to lows of -0.23 percent and -0.06 percent, respectively.
The yield on Greek bonds had risen sharply on fears the Greek stalemate would weigh on investor sentiment. But those moves reversed as risk appetite picked up.
German yields were higher across the curve, while the yield on the benchmark 10-year U.S. Treasury bonds jumped six basis points to 2.04 percent US10YT=RR, the highest in over a month.
Russian markets led a broad rally in emerging markets.
U.S. crude CLc1 was up 3 percent at $50.34 a barrel after dropping as much as 3 percent overnight, and Brent crude was up 2.6 percent at $56.10 LCOc1.