Solid ECB lending data buoys euro, saps shares

Reuters | | Updated on: Dec 06, 2021

European shares fell for the first time in four days on Tuesday and the euro kicked away from a 10-day low as solid euro zone bank lending data cooled expectations of another jolt of European Central Bank stimulus this week.

The 0.5 per cent decline in the pan-European FTSEurofirst 300 index took the shine off stocks after Chinese shares neared a two-month high as the market’s recent recovery continued.

The dollar meanwhile fell for the first time in four days as the euro and the Canadian dollar, which had been knocked overnight by a shock majority election victory for the country’s Liberal party, both rebounded.

The quarterly lending data from the ECB ahead of its meeting on Thursday was the principal driver for the euro’s bounce, and for the turnaround in Europe’s stocks and bonds after what had been a positive start.

It dampened bets the euro zone’s central bank will ramp up its €1 trillion asset purchase programme, this week at least, showing that euro zone banks had loosened their lending standards more than expected over the last few months despite the recent global market volatility.

Companies’ demand for loans also rose, albeit by less than expected, and a “further considerable increase’’ was predicted in the coming months, the ECB said, as well as more easing of banks’ lending rules.

ECB Governing Council member Christian Noyer had said late on Monday that the bank’s quantitative easing programme was “well calibrated’’ and did not need to be adjusted.

“The Noyer comments are important,’’ said a senior trader at one international bank in London. “It does seem as if they’re trying to back the market away from thinking there’s going to be another easing announcement.’’

Commodity markets were also taking advantage of the weaker dollar following a tough start to the week.

Brent crude was little changed at $48.61 having dropped $1.85 a barrel or 3.7 per cent on Monday, while US light crude was up 20 cents at $46.09 after a similar fall.

Copper, nickel and aluminium also tried to recover from two straight days of falls driven by persistent concerns about lacklustre global demand and oversupply.

Loonie fine-tunes

The Canadian dollar, known as the loonie, steadied at C$1.3020 to the dollar after slumping almost 1 per cent overnight after the Liberal party’s shock outright election victory. The Liberals have promised more public spending and tougher environmental rules — Canada has one of the world’s ‘dirtiest’ oil industries.

“It’s a big surprise that it’s a majority government and of course it’s a Liberal government,’’ said John Hardy, head of FX strategy at Saxo bank in Copenhagen, who didn’t expect the CAD to hold up for long.

“The dollar is just meandering about now so I think the market just feels very uncertain about what to do in the current set of circumstances (regarding the Federal Reserve's next move) and is probably waiting passively for the ECB on Thursday too.’’

Though the bank lending data appeared to kill off the chances of immediate action this week, policymakers continued to make noises about the possibility the ECB will expand or extend its asset purchases to spur growth and inflation.

“If the (ECB) deems it necessary, it could use the flexibility it has given the acquisition programme to extend its size ... or modify its composition,’’ said Bank of Spain Governor Luis Maria Linde, echoing Austria's Ewald Nowotny last week.

In Asia overnight, MSCI’s broadest index of Asia-Pacific shares outside Japan shed 0.5 per cent although Shanghai shares gained on hopes an imminent Chinese five-year economic plan will include more stimulus measures.

Published on October 20, 2015
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