Stocks rose in Europe and Asia on Thursday and yields fell on some of the euro zone’s battered low-rated bonds as investors put aside the political risks that have dominated markets this week.
In a difficult start to the year, investors are pondering the impact of a new US president, an unpredictable European electoral calendar and a potential winding-down of the central bank stimulus that has lifted risky assets across the globe.
Rising oil prices pushed energy company shares higher in Europe on a busy day of corporate earnings while Asian stocks hit their highest in more than 18 months.
“The stabilisation of the oil price after its recent wobbles, together with solid earnings, for example, Soc Gen today, is driving the positive sentiment,” said Andy Sullivan,portfolio manager with GL Asset Management UK in London.
The pan-European STOXX 600 index rose 0.4 per cent. Bank shares also rose after French lender Societe Generale reported lower fourth-quarter net income that nonetheless beat analysts forecasts.
MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.3 per cent to their highest since July2015 with Hong Kong, Taiwan and China among the region’s best performing markets.
Japanese shares, however, fell 0.5 per cent, hit by earlier yen strength the day before Japan’s Prime Minister Shinzo Abe meets US President Donald Trump.
Yields on Spanish and Italian 10-year government bonds fell. Earlier this week, concern over the impact of elections this year in countries, including France and Germany, saw investors sell bonds of lower-rated euro zone countries.
“We have some relief with investors shrugging off some of their concerns with a feeling that things went too far, too fast,” said Martin Van Vliet, senior rates strategist at ING.
Spanish 10-year yields fell 4 basis points to1.66 per cent, while Italian equivalents fell 3 bps to 2.2 per cent.
French yields dipped 1 bps to 1.01 per cent.
The premium investors demand to hold French rather than German debt hit its highest in four years on Wednesday, three months before the final round of a presidential election expected to include far-right, anti-euro candidate Marine Le Pen.
Yields on German 10-year bonds, seen as among the world’s safest assets, rose 0.5 bps to 0.31 per cent.
Apart from political risks, bond investors are pondering the impact of the European Central Bank eventually winding down its bond-buying stimulus scheme, which has driven down borrowing costs in the bloc for the past two years.
ECB President Mario Draghi and German Chancellor Angela Merkel, bidding for re-election later this year, will meet on Thursday. A number of German officials have called on the ECB to unwind its monetary stimulus.
The euro steadied just below $1.07 after falling on Wednesday to a two-week low of $1.0640.
The yen fell 0.3 per cent to 112.29 per dollar, having earlier traded as strong as111.70. The dollar index, which measures the greenback against a basket of currencies, dipped 0.1 per cent.
US Treasury yields fell to their lowest since mid-January on Wednesday as investors re-assess how many interest rate rises can be expected from the Federal Reserve and look for clarity over whether Trump will make good on his campaign pledges for tax cuts and infrastructure spending.
Ten-year Treasuries yielded 2.36 per cent in European trade on Thursday, up 1.2 bps.
Oil prices rose after an unexpected draw down in US gasoline inventories. Brent crude, the international benchmark, rose 51 cents a barrel, or 0.9 per cent, to $55.63.
In a sign that political risks are still on the radar, gold held close to three-month highs touched on Wednesday. Spot gold rose 0.1 per cent to $1,243 an ounce, compared with from Wednesday’s high of $1,244.67.