Greek Optimism Launches European Shares Higher
Stock markets rose on Thursday and the euro gained as investors bet that Greece would pull off a bond swap needed to avoid a chaotic default and that the U.S. economy would deliver more upbeat news.
But markets are expected to remain cautious ahead of the formal announcement on the Greek deal, as well as Friday's keenly-watched U.S. jobs report, while central banks are being closely monitored for signs they will keep promoting growth.
"This (Greece) has been the game of anticipation. I think it's likely to remain volatile but overall ... we would be expecting more upside potential moving into next week," Luca Solca, global head of European research at CA Cheuvreux, said.
The MSCI world equity index gained 0.8 percent to 326.61 after gains across Asia and in U.S. markets on Wednesday.
The broad FTSE Eurofirst 300 index of top European companies rose 0.5 percent to 1,063.8 with the banking sector , which is most directly linked to Greece's debt worries through its sovereign debt holdings, adding 1 percent.
Hopes the Greek deal would get done lifted most other assets from copper and gold to oil, along with commodity-linked currencies such as the Australian dollar, while the U.S. dollar took a back seat although it rose against the yen.
According to a Greek government official there has been a strong take-up of its bond swap offer by private investors ahead of the Thursday evening deadline, a key element in an 130 billion euro ($170 billion) second bailout.
But the depth of the country's malaise was emphasised by news that its jobless rate rose to a fresh record of 21 percent in December from 20.9 percent in November.
The Greek swap and U.S. nonfarm payrolls, due on Friday, are seen as a test of whether markets can build on the optimism of recent months and overcome patchy growth figures that have dented sentiment.
The euro was up 0.5 percent to $1.3220, recovering from a three-week low of $1.3096 touched on Wednesday.
German government bonds fell on all the optimism with the June futures contract down 38 ticks at 138.18.
Yields on 10-year Italian government bonds fell 10 basis points to 4.84 percent, while the equivalent Spanish yield fell to 5.02 percent.
CENTRAL BANKS ON HOLD
Market attention is switching back onto monetary policy settings after a U.S. report that the Federal Reserve is considering a new approach to asset purchases, while rumours surfaced during the Asian trading session that Chinese authorities maybe considering a rate cut.
The European Central Bank is expected to signal after its monthly policy meeting that it has played its part in fighting the euro zone crisis after pumping more than 1 trillion euros into the banking system since the end of December.
"We don't expect any dramatic changes, but the inflation forecast for 2013, currently at 1.5 percent, should be watched closely," Derek Halpenny, European Head of Global Currency Research at Bank of Tokyo-Mitsubishi UFJ, Ltd said.
The Bank of England will announce its latest monetary policy decision earlier, though the UK central bank is widely expected to leave interest rates on hold at 0.5 percent and stick with February's decision to buy an extra 50 billion pounds ($79 billion) of government bonds.
Central banks in South Korea, New Zealand and Indonesia all left key rates on hold at policy meetings on Thursday.
COMMODITIES FIRM
Oil gained a lift from the Greek debt deal hopes, with prices for Brent crude staying above $124 a barrel also supported by continuing fears of supply disruptions from Iran.
Front-month Brent climbed 66 cents to $124.78 a barrel, having touched earlier intra-day highs of $125.13. U.S. crude was up 56 cents at $106.72 a barrel.
Spot gold edged up 0.2 percent to $1,688.70 an ounce.
"Greece has certainly lent support to the euro, that in turn has spurred commodities, specially the dollar-denominated commodities to rally or certainly stabilise," said Tony Machacek, an energy broker at Bache Commodities.