GLOBAL MARKETS-Euro soars to 3-year high, stocks shatter records

From Reuters - January 12, 2018

LONDON (Reuters) - Record high world stocks headed for an eighth straight week of gains on Friday, while the euro sailed to a three-year high as progress on forming a German government added to signs the ECB may accelerate an end to its stimulus.

MSCIs broadest gauge of the worlds stock markets hit yet another all-time high as it bulldozed toward its longest weekly winning streak since 2010.

It has already surged 3.5 percent since the start of the year. U.S. stocks were also set to open 0.1-0.4 percent higher, which should ring in yet more Wall Street records and erase any remaining memory of the short-lived losses seen midweek.

With dollar traders still dazed by the euros gains over the last 24 hours, the main focus is set to be consumer price inflation data due at 1330 GMT that will further feed the debate on the pace of Fed rate hikes this year. [.N]

This bull market is highly related to the fact we are facing good growth, low inflation and soft monetary policy normalisation, said Jeanne Asseraf Bitton, head of cross-asset research at Lyxor Asset Management. If any of those were to be shaken that would be a big problem.

Germanys 10-year Bund yield had briefly hit a fresh five-month high of 0.54 percent after Chancellor Angela Merkels conservatives and the Social Democrats agreed a blueprint for formal coalition negotiations, news that also buoyed the euro.

Germanys DAX gained as much as 0.3 percent with most of Europe following suit but the strength of the euro, which was almost matched by Britains pound and the Swiss franc, eventually dragged them back to almost flat on the day.

The euros leap took it as high as 1.2128, the pound was up 0.7 percent at $1.3636 while the franc enjoyed the view from a three-month high of 97.85 cents per dollar.

The euros overnight index swap rates have risen sharply this week as traders priced in a higher chance of a rate hike early next year.

While the currencys rise has reflected growing optimism over the blocs economic recovery, investors have flagged it as a potential brake on stocks. Monica Defend, head of strategy at Amundi Asset Management, said the currency, for which she has a target of $1.22, was the biggest risk to European equities.


A sell-off in European bonds eased slightly after yields were driven higher by minutes on Thursday of the European Central Banks December meeting that showed policymakers think it should revisit its communication stance in early 2018.

Lyxors Bitton said Bund yields were already near to hitting her target for the first quarter. U.S. Treasury were starting to creep higher again too ahead of U.S. trading. They hovered at 2.56 percent having eased back from Wednesdays 10-month high of 2.597 percent.


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