Stocks and bonds rally on interest-free ECB cash

Markets appear relatively unruffled by Wednesday’s terror attack in London

Markets are focused on  President Trump’s efforts to pass controversial healthcare legislation. Photograph: Reuters

Markets are focused on President Trump’s efforts to pass controversial healthcare legislation. Photograph: Reuters

 

Euro zone stocks and bonds rallied on Thursday as banks snapped up almost quarter of a trillion euros of interest-free European Central Bank cash in what the ECB hopes will be the last outing for one of its main crisis-fighting tools.

Banks took a €233 billion at the ECB’s TLTRO (targeted long-term refinancing operation), over €100 billion more than had been forecast, fanning hopes of another spending stampede by market bulls.

The pan-European FTSEurofirst 300 rose 0.25 per cent with Frankfurt, Paris and Milan up as much as 0.6 per cent and Wall Street set to open higher ahead of a key test of Donald Trump’s policymaking ability.

The Iseq climbed by 0.9 per cent.

Highly indebted Italy, Spain and Portugal and euro zone banks also saw their bonds rally, as analysts bet that they would be the first items on the shopping list of many of the 474 banks that had taken the ECB money.

Irish bonds also strengthened.

“That (TLTRO) was a policy designed for extraordinary times, we are not in them now,” said Nick Gartside of JP Morgan Asset Management.

Markets showed no lasting reaction to Europe’s latest terror attack, which for the second time in 10 years had seen London, targeted.

Sterling

Sterling started steady and then climbed swiftly above $1.25 as more-resilient-than-expected UK retail sales data proved that Britain’s consumers aren’t being cowered by looming Brexit negotiations and rising inflation.

The dollar was also creeping higher with attention firmly whether or not Mr Trump will get his highly-publicised healthcare changes to roll back ‘Obamacare’ passed by US Congress.

“What we are getting this week is a questioning of how much of the risk rally is predicated on future Trump policy,” said Michael Metcalfe, head of global macro strategy at State Street Global Markets.

“There are concerns that this vote (on healthcare reform) will be a litmus test of how much fiscal expansion he can get through.”

After losing 3.5 per cent in the past 10 days, the dollar was roughly steady at 111.05 yen. It gained as much 0.1 per cent to $1.0786 per euro and hovered 0.1 per cent higher against the basket of currencies used to measure its broader strength.

-(Reuters)