European shares hit 13-month high

LONDON: Global shares continued to rally yesterday, with top European stocks hitting a 13-month high helped by apparent support from German Chancellor Angela Merkel for European Central Bank intervention to calm the euro zone’s debt troubles.
Merkel said declarations by ECB President Mario Draghi, who outlined conditional plans at the start of the month to buy bonds of troubled euro zone governments, were “completely in line” with the approach taken by European leaders and urged the bloc to now act swiftly to tackle its woes.
Hopes the bloc may finally be getting a grip on its problems lifted top European shares 0.22 percent to a new 13-month high and putting them on track for their best weekly run in seven years.
“Two things have been helping risk assets,” said Investec economist Philip Shaw.
“Data showing that there are some signs of life in the US economy, and the other dominant theme that euro zone policymakers may be getting on top of the debt crisis.”
“With his promise to do whatever it takes to save the euro, Mario Draghi has engendered hope there will be a new concerted effort by the euro zone to tackle the crisis and Merkel’s comment backing that has helped support that belief,” he added.
The main indexes in London, Paris and Frankfurt were all in positive territory, helping themMSCI index of global shares, at their highest since May 4, to extend an 11.5 percent gain that started back in June.
Financial markets have been riding high in recent weeks on hopes that new crisis plans being drawn up by the ECB, and due to be detailed at the start of September, will put a floor under Spain and Italy’s troubles and prevent the euro from unraveling.
After spending the morning up, the euro finally gave up gains against the dollar to stand at $ 1.2340. It also hit a six-month high against the yen.
US futures pointed to a more subdued open on Wall Street, with futures for the S&P 500 down 1.8 points, Dow Jones futures down 7 points and Nasdaq 100 futures up 0.13 percent. Oil prices slipped below $114 a barrel after sources told Reuters the US government was dusting off plans for a possible release of oil reserves.
Gold inched up to $1,617.66 an ounce.
Demand for German government bonds remained steady yesterday, even as the appetite for riskier assets which offer better returns continued to strengthen.
Bund futures were up slightly on the day. They have come off more than 3 points since the ECB’s Draghi promised last month to do whatever it took to “preserve the euro.”
Ten-year German government bond yields were down 1.5 basis points at 1.51 percent, while those for Spain were also lower.
“I wouldn’t be surprised to see 10-year Bund yields edging a bit higher toward 1.60-65,” said Rainer Guntermann, strategist at Commerzbank.
“At that level, they should start to look a little more attractive ... going into September.”
September will be a crunch period for the euro zone and its hopes to overcome its debt troubles.
The ECB is due to flesh out its new bond-buying crisis strategy by Sept. 6, and Germany’s constitutional court will deliver a ruling on Sept. 12 on the euro zone’s permanent ESM rescue fund, before which Berlin cannot ratify the treaty on it.
Dutch elections are held on the same day. And on Sept. 14-15, European Union finance ministers meet in Cyprus. By then, the troika of EU, IMF and ECB inspectors may have also delivered a verdict on Greece’s progress in cutting its debt.
Next week will also offer interest. Greek Prime Minister Antonis Samaras will meet Merkel, French President Francois Hollande and Eurogroup chief Jean-Claude Juncker in a bid to secure more funding from the EU, IMF and ECB, despite Greece falling behind on its debt cut targets.
Next Friday, Spain is due to lay out details for a new ‘bad bank’ to absorb real estate assets owned by troubled commercial banks.
The minutes from the Federal Reserve’s August meeting may shed light on why the US central bank refrained from extending its promise to keep interest rates low beyond late 2014 as investors had anticipated heading into the meeting.