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GLOBAL MARKETS-Russia-Ukraine deal and Swedish QE boost morale
February 12, 2015 / 11:41 AM / 3 years ago

GLOBAL MARKETS-Russia-Ukraine deal and Swedish QE boost morale

* Russia-Ukraine ceasefire deal struck

* Sweden takes bold steps with negative rates and QE

* Hopes for Greek debt agreement next week

By Jamie McGeever

LONDON, Feb 12 (Reuters) - A ceasefire between Russia and Ukraine and a surprisingly aggressive dose of stimulus from Sweden’s central bank on Thursday injected life back into world markets, which had been numbed by a stalemate in talks between Greece and its euro zone creditors.

European stocks bucked the trend in Asia and reversed their opening losses, also taking heart from a broadly positive raft of reports on what is one of the busiest days in the corporate earnings calendar.

Even Greek stocks surged, as investors ignored the uncertainty likely to linger into next week after seven hours of crisis talks in Brussels between Greece and its creditors failed to produce even a joint statement on the next steps.

They instead pinned hopes on a deal being struck on Monday, also taking their cue from the ceasefire between Russia and Ukraine, which will take effect from Feb. 15, and the Swedish Riksbank’s decision to cut interest rates below zero and buy government bonds.

“If the fighting in Ukraine subsides, the upturn in European business confidence and investment can probably continue to firm, supported by strong tailwinds from low oil prices, a fairly valued exchange rate and a supportive ECB stance,” said Holger Schmieding, chief economist at Berenberg Bank in London.

The ceasefire deal came shortly after the International Monetary Fund announced a new multi-billion dollar, four-year funding programme for Ukraine that will total $40 billion.

The FTSEuroFirst index of 300 leading shares rose 0.7 percent to 1,494 points, France’s CAC40 rose 1 percent to 4,726 and Germany’s DAX jumped 1.7 percent to 10,930, within 60 points of its record high.

Stock market investors cited other rays of sunshine, such as encouraging European earnings reports. Shares in Swiss bank Credit Suisse and French carmaker Renault were among the leading gainers, both rising 7 percent.

Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan had fallen 0.5 percent on a broad decline in markets from Australia to China.


Britain’s FTSE 100 rose 0.5 percent to 6,851, underperforming its European peers as investors put a hawkish interpretation on the Bank of England’s quarterly inflation report.

The Bank raised its UK growth and inflation forecasts, while at the same time leaving the door open to cutting interest rates and even expanding its “quantitative easing” bond-buying programme if necessary.

Sterling rose more than half a percent to a one-week high against the dollar of $1.5320.

“With the (Bank) fairly relaxed about the prospect for deflation, we still think there is a reasonable chance of a rate hike before the end of this year,” said Vicky Redwood, chief UK economist at Capital Economics.

Elsewhere in currencies, the euro was flat at $1.1330 , and the Swedish crown weakened to a six-year low of 8.54 crowns against the dollar.

The Australian dollar fell 0.5 percent to $0.7685 after weak jobs data increased prospects for further easing by the Reserve Bank of Australia. Unemployment rose to 6.4 percent in January, the highest since mid-2002.

The surge in equities forced a rethink in bonds. Investors had sought the safety of “core” government bonds, pushing the yield on German two-year and five-year debt to remarkable record lows of -0.23 percent and -0.06 percent respectively.

Meanwhile, the yield on Greek bonds had risen sharply on initial fears that the Greek stalemate would weigh on investor sentiment.

But these moves reversed as risk appetite picked up. German yields were higher across the curve, while the yield on the benchmark 10-year U.S. Treasury bonds jumped six basis points to 2.04 percent, the highest in over a month.

Russian assets led a broad rally in emerging markets , and U.S. crude was up 3 percent at $50.20 a barrel after dropping as much as 3 percent overnight. Brent crude was up 2 percent at $55.73.

To read Reuters Global Investing Blog click here for the MacroScope Blog click on for Hedge Fund Blog Hub click on (Reporting by Jamie McGeever; Editing by Kevin Liffey)

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