XM Investment Research Desk: European equity markets recovered on Friday following a highly volatile session yesterday as markets digested the ECB’s unexpectedly large and unconventional stimulus measures. Shares in Frankfurt and Paris were up by around 3% in late European trading. London’s FTSE-100 index was up by a more modest 1.5% as mining stocks underperformed.
The euro came down from yesterday’s one-month high of 1.1217 dollars and had retreated to 1.1080 dollars in mid-European session before strengthening again to reclaim the 1.11 handle in late trading. The single currency’s spike yesterday came after ECB President Mario Draghi signalled in his press conference that interest rates are unlikely to be cut much further. This reversed sharp losses from minutes before when the ECB delivered a bigger-than-expected loosening of monetary policy.
There was also confusion by traders surrounding the exact details of the central bank’s plans to include non-bank corporate bonds to its list of asset purchases, as well as the new targeted longer-term refinancing operations.
The euro’s recovery helped the pound, which jumped above 1.42 dollars yesterday. Better-than-expected trade data earlier in the day helped sterling to extend its gains past the 1.43 handle. The pound could see renewed volatility next week as the government reveals the budget for 2016/17 and the Bank of England meets for its policy meeting.
The dollar/yen pair had a steadier session, which saw the dollar peak at 113.91 yen before weakening to around 113.40 yen.
Commodity currencies were also market movers on Friday as a late rebound in crude oil prices drove the Australian and New Zealand dollars higher. The aussie surged above 0.7570 versus the US dollar in late European trading, while the kiwi was back above 67 US cents.
Crude oil futures got a lift after the International Energy Agency said that oil prices may have bottomed out following a fall in non-OPEC production. US oil futures approached $39 a barrel and Brent crude was just shy of $41 a barrel in late European session.
The Canadian dollar had a bumpier ride in its rally versus the US dollar today as weaker-than-expected unemployment figures temporarily pushed the loonie lower. The unemployment rate in Canada unexpectedly rose to 7.3% in February from 7.2%, interrupting the greenback’s decline, which jumped to 1.3313 after the data before resuming its decline to around 1.3190 in late European trading.
Gold bucked the trend against other commodities as the increased risk-on sentiment led to a drop in prices to $1256 from an earlier one-year high of $1283.43 an ounce.
Looking ahead to next week, Chinese data out tomorrow will likely dominate Monday’s Asian trading as the monthly industrial output, fixed investment and retail sales figures are released. All three indicators are forecast to show an easing in the annual rate of increase in the corresponding figures for January.