LONDON (Reuters) - Another ‘dovish taper’ from the European Central Bank and some stellar Q3 earnings from the bellwether U.S. tech and internet sector were enough to quickly reboot world equity markets overnight, with the dollar’s surge against the ECB-hit euro the standout currency moves.
The ECB halved its monthly bond buying totals to 30 billion euros, as expected, and extended its Quantitative Easing programme for at least another nine months through September. The tone of the its accompanying comments suggested there was little rush in ending the stimulus altogether than interest rates were unlikely to move higher while it was in place.
The lack of any hawkish surprises dragged German debt yields and euro zone sovereign spreads to bunds lower, whacking the euro/dollar exchange rate by more than 1 percent to its lowest since July and recording its biggest one-day loss in more than a year.
The brightening earnings picture added fuel to this week’s climb in U.S. Treasury yields to their highest since March and also the dollar, whose DXY index is at its highest in three months. U.S. Q3 GDP data out later is expected to show a slight slowing in the annualised rate of growth to 2.5 percent from 3.1 percent in Q2.
The U.S. Q3 earnings season, meantime, went up a gear on Thursday and steadied Wall St indices after Wednesday’s jolt.
Twitter flagged the possibility of its first ever quarterly profit in Q4, sending its stock price up almost 20 percent. DowDuPont Chemical led the S&P500 during regular hours with gains of almost 3 percent after its earnings beat. Then a huge beat from Amazon saw its shares rise almost 8 percent after the bell – its biggest daily move in 16 months if sustained through Friday and taking market cap past $500 billion. Google parent Alphabet stock jumped around 3 percent in post-market trade after it reported a 24 percent rise in revenue.
Microsoft also gained almost 4 percent to a record high after it reported a forecast-beating 16 percent rise in profits. The only big negative on Thursday was the pharma sector after reports Amazon had got clearance to become a wholesale distributor of drugs. S&P500 futures point to a flat to positive start on Friday.
Overall, with almost half the S&P500 Q3s now reported, the aggregate annual profit gain is running at almost 10 percent – more than twice pre-season forecasts.
It’s been more of a mixed picture so far in Europe, but more than half of the euro zone firms that have reported so far have beaten estimates and profit growth is running at the same pace the in the United States. On Friday, financials UBS and RBS both reported Q3 profits ahead of expectations, while Linde’s bottom line also beat forecasts. Geely’s Volvo cars posted a 78 percent rise in Q3 profits. On the downside, LafargeHolcim cut its full-year earnings target, while Clariant and Huntsman abandoned their $20 billion merger.
European stock futures are pointing to positive start. Asia bourses were higher across the board overnight, with Japan’s Nikkei leading the way again with gains of more than 1 percent as the yen weakened.
Still basking in the glow of the ECB decision, European government debt markets now turn to increasingly unpredictable standoff between Madrid and Catalonia as Catalan leaders stopped short of calling new regional elections on Thursday, leaving open the chance of either a unilateral declaration of independence and the imposition of direct rule from Madrid.
Sterling was largely a bystander amid the big the euro and dollar shifts over the past 24 hours as it awaits next week’s widely expected UK interest rate rise, but it nudged lower against both the euro and dollar early on Friday as both S&P and Fitch’s reviews of Britain’s sovereign credit rating later in the day.
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