London: A signal from the European Central Bank that it would slow its stimulus programme from April next year spooked bond and money markets on Thursday and triggered a short sharp surge in the euro.
Stock markets took the move in their stride with a closely-followed global index extending a three-month high but the decision to reduce the long-running bond buying scheme from April stunned debt markets.
Italy and Spain lead falls in Eurozone bonds, with 10-Year yields up 13-14 basis points on the day, while banking stocks in contrast cheered the prospect of an end to relentless low-interest pressure which has been putting pressure on profits.
"From April 2017, the net asset purchases are intended to continue at a monthly pace of 60 billion euro until the end of December 2017, or beyond," the ECB said, detailing the move that will drop the purchases from 80 billion a month at present.
The euro surged by almost a cent after the bank's statement to hit $1.0875, but it quickly retreated to $1.0753 - flat on the day.
After initially turning negative following the ECB announcement, European shares extended gains with the STOXX last trading up 0.6 per cent, underpinned by strong gains among banking sector stocks.
Euribor money market futures fell as much 8 bps across the 2017-2020 curve as investors moved to price in a slim chance of a rise in Eurozone interest rates late next year.
"The bank has extended its quantitative easing program until December which is more than what the market was expecting," said Naeem Aslam, chief market analyst at ThinkMarkets.
"However, the bank is going to reduce their firepower after March and will only be purchasing 60 billion. So you can say that the bank is tapering in a more dovish way."
Fine China
The gains in European and world stocks, came after Asian shares had risen to one-month highs overnight while Wall Street futures pointed to US markets adding modestly to record highs set on Wednesday.
Risk appetite got a boost earlier when China reported upbeat trade figures, with exports and imports both beating forecasts. Resource imports were strong, a major reason prices for bulk commodities have been rising.
The resource-heavy and China-sensitive Australian market jumped 1.2 per cent, as did MSCI's broadest index of Asia-Pacific shares outside Japan.
A record peak for Samsung helped lift South Korea 2 per cent and Tokyo's Nikkei gained 1.45 per cent as it brushed off a disappointing downward revision to Japan's third-quarter growth.
"The (China data) improvement reflects a strengthening in global demand, with recent business surveys suggesting that developed economies are on track to end the year on a strong note," said Julian Evans-Pritchard of Capital Economics.
In commodity markets, oil steadied after slipping on doubts that production cuts promised by OPEC and Russia would be deep enough to end a supply overhang.
Brent futures were up 18 cent at $53.22 and US crude inched to $49.95, and Russia announced it had sold a 10.5 billion-euro, 19.5 per cent stake in oil giant Rosneft to Qatar and commodities trader Glencore.
Gold nudged higher and commodities including iron ore and coking coal held recent hefty gains as Chinese demand drove steel prices to their highest since April 2014.
China's imports of iron ore, crude oil, coal, soybeans and copper all surged in November, customs data showed.
Back in the currency market, New Zealand's dollar was also big gainer amongst the major currencies after its central bank head made it clear the bank was probably done with cutting interest rates.
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