Europe stocks hold gains before ECB, euro surges

European stocks traded near a four-week high on Thursday and the euro strengthened before the European Central Bank’s first policy review since Brexit. Asian equities rose to this year’s high as oil climbed amid prospects for stimulus in the region.

The euro rose from near a three-week low amid speculation the ECB will leave policy unchanged on Thursday and signal further easing for later in the year. The Topix index gained and the yen weakened after Japan was reported to be considering a 20 trillion yen ($187 billion) stimulus program. New Zealand’s currency fell versus major peers after the central bank said interest rates are likely to be cut. Malaysia’s stocks and currency were Asia’s worst performers as alleged fraud at a state investment fund returned to the spotlight. Oil traded near $46 a barrel.

The quarterly earnings season has been giving fresh impetus to a global equities rally that’s added almost $5 trillion to stock valuations since the post-Brexit low on June 27. So far, about four in five of S&P 500 Index members that have reported results beat analysts’ profit estimates, though outperformance has been less common in Asia and Europe.

“We have better corporate earnings, likely bold fiscal stimulus in Japan, zero interest rates helping to absorb every macro shock we hear about and broad monetary easing,” said Chris Weston, chief market strategist at IG Ltd. in Melbourne. “If equity markets can’t rally in this environment they never will and really the key concern holding back fresh capital is significantly elevated valuations.”

Indonesia’s central bank is forecast to lower interest rates on Thursday, following cuts in Malaysia and Turkey since the start of last week. South Africa also has a monetary policy review, though economists don’t see any likelihood of a change.

Stocks

The Stoxx Europe 600 index was little changed as of 8:20 a.m. London time as Thursday’s earnings proved a mixed bag. Daimler AG advanced after saying its profit exceeded market expectations in the last quarter, while Danske Bank A/S fell after its net income missed analysts’ estimates.

The MSCI Asia Pacific Index rose 0.4 percent, set for the highest close since November. Hong Kong’s Hang Seng Index was poised to enter a bull market, having rebounded more than 20 percent from a February low.

The Topix climbed 0.7 percent, led by gains in exporters amid the yen’s retreat. The Japanese government is considering a 20 trillion yen stimulus package, about double its initial plan, to counter the possible effects of the U.K.’s decision to leave the European Union, Kyodo News reported, citing people close to the matter.

The FTSE Bursa Malaysia KLCI Index dropped 0.5 percent. U.S. prosecutors said they plan to seize assets after more than $3.5 billion was misappropriated from 1Malaysia Development Berhad, a state development fund known as 1MDB that was previously headed by Prime Minister Najib Razak. Singapore said it seized S$240 million ($177 million) in assets linked to the alleged fraud.

S&P 500 Index futures were little changed, after the gauge closed at a record high. AT&T Inc., General Motors Co. and Visa Inc. are among U.S. companies set to release results on Thursday, while American home-sales data are also scheduled.

Currencies

The euro appreciated 0.2 percent to $1.1031, after sinking below $1.10 on Wednesday for the first time since June. Draghi has predicted that euro-area growth will slow as a result of the U.K.’s vote to leave the European Union, suggesting a response is needed, and most economists predict further monetary easing this year. The yen fell as much as 0.6 percent versus the dollar, before recouping most of its loss.

“Draghi will keep his options open for further easing,” helping fuel a gradual decline in the euro amid broad dollar strength, said David Forrester, a foreign-exchange strategist at Credit Agricole SA’s corporate and investment-banking unit in Hong Kong. “The yen has already sold off a lot in anticipation of the government’s fiscal stimulus package and next week’s BOJ meeting. We’re looking for it to continue tracking lower.”

The kiwi dropped 0.7 percent after the Reserve Bank of New Zealand said further monetary easing is likely to be required to lift inflation, reinforcing expectations interest rates will be cut next month.

The Bloomberg Dollar Spot Index held near to its highest close since May. A Citigroup gauge that tracks the degree to which American economic data are exceeding projections is at an 18-month high and futures put the chance of a Federal Reserve interest-rate increase this year at 47 percent, up from 9 percent at the end of June.

Malaysia’s ringgit slumped 0.7 percent amid the 1MDB controversy. Indonesia’s rupiah traded near a one-week low as economists forecast the central bank will reduce its benchmark interest rate by a quarter of a percentage point for the fifth time this year. The yuan rose for a third day, its longest winning streak in three months, after the People’s Bank of China strengthened its daily fixing in a show of support for the currency before Group of 20 finance chiefs meet for talks in China this weekend.

Turkey’s lira rebounded 0.6 percent, after plunging to a record low on Wednesday. S&P Global Ratings downgraded the country’s debt on concern about an increase in political risk after a failed coup last week and the government declared a state of emergency as it pursues those responsible.

Commodities

Oil for September delivery rose 0.4 percent to just shy of $46 a barrel in New York after weekly U.S. government data showed crude stockpiles fell for a record ninth week and refining activity climbed to a 2016 high.

Copper rose 0.4 percent in London, set for its highest close since April, and zinc advanced to a 14-month high.

Bonds

Germany’s 10-year bonds fell, lifting their yield by one basis point to about zero.

The yield on similar-maturity U.S. Treasuries increased by one basis point to 1.59 percent. It sank to a record 1.32 percent on July 6 and analysts see it ending the year at 1.74 percent, a Bloomberg survey shows.

New Zealand’s 10-year yield declined three basis points to a two-week low of 2.26 percent. Swaps traders are pricing in an 89 percent chance the RBNZ will cut its interest rate from a record low next month, up from 64 percent a week ago.

Source: Bloomberg