Global Markets Rally Amid Central Bank Hopes

Markets Reuters

World shares and oil rose on Thursday as signs of modest growth in the global economy raised the likelihood that major central banks will stick with policies aimed at supporting the recovery.

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Both the European Central Bank and the Bank of England are likely to leave their loose policies unchanged at rate-setting meetings later in the day, echoing the Federal Reserve on Wednesday which gave no hints of changes to its stimulus plans.

"Central Bank policy is still very much the driving force in the markets, and I think the recent data is very consistent with policy as it stands," said Ian Stannard, head of European FX strategy at Morgan Stanley.

The prospects of ongoing support from the ECB and Bank of England only grew after euro zone manufacturing data showed activity just starting to pick up for the first time in two years during July.

That followed an official Chinese survey pointing to a small acceleration in its vast factory sector last month, although a rival report from HSBC was much more gloomy, showing activity fell to its lowest in nearly a year.

"On the manufacturing front, China delivered quite a mixed message. But in the European corner things are looking better, with signs of improvement in the beleaguered region," said Gekko Markets sales trader Anita Paluch.

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The Chinese data did give a boost to local stock markets and, in Tokyo, helped Japan's Nikkei to jump 2.5 percent for its biggest one-day gain in three weeks. But Asian shares tracked by MSCI Asia-Pacific ex-Japan index were more subdued, adding 0.3 percent to snap a three-day losing run.

The encouraging euro zone manufacturing data, along with some strong company earnings and the Fed's indication of no immediate cut in its bond buying programme combined to lift European shares 0.5 percent by mid-morning trade.

The STOXX Europe 600 Basic Resources index of mostly mining shares was among the big gainers, climbing 1 percent. While bank stocks jumped 1.3 percent after France's Societe Generale said its second-quarter earnings had more than doubled.

 

DOLLAR ASCENDANT

In currency markets, the likelihood the ECB and Bank of England will remain biased towards keeping rates low for some time undermined the euro, giving the dollar a lift.

The dollar index, which tracks the greenback's performance against a basket of major currencies, last stood at 82.05 , about 0.65 percent above late Wednesday U.S. levels but still not far from a six-week low touched earlier that day. The euro had slipped 0.4 percent to trade around $1.3240.

The hopeful signs of an end to the euro area's 18-months-long recession contained in recent data are expected to encourage the ECB to stick by last month's guidance that rates will stay at 0.5 percent or lower for an "extended period".

However, traders will be watching ECB President Mario Draghi for any hint of another cut in rates, possibly as soon as September, when he gives a post-meeting news conference.

The dollar was expected to remain firm regardless of the outcome of the ECB meeting as the U.S. payrolls report due on Friday is likely to show a solid increase in new jobs, adding to speculation the Fed will ultimately curtail its stimulus.

Employment outside the farming sector is seen rising by 184,000 during July, according to economists polled by Reuters with a chance the number may be higher after a survey on Wednesday showed private jobs rose 200,000 in July.

Meanwhile the prospect of easier monetary policy over the coming months as the global economy slowly recovers supported most major commodities.

Brent crude prices traded above $108 a barrel, a rise of over $1.00, while copper prices were up nearly 1 percent, extending a 2.2 percent bounce in the previous session, to trade near a one-week high.

However, gold reversed its early gains to shed 0.2 percent to around $1,319 an ounce as the rising dollar, which makes the metal more expensive, hurt demand.