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Asian markets sharply higher after ECB move

September 7, 2012

Hong Kong: Asian markets surged today after European Central Bank chief Mario Draghi unveiled a plan to buy the bonds of troubled eurozone nations in a bid to tackle the region’s long-running debt crisis.

The bullish sentiment fuelled by Draghi’s announcement was increased by US data showing many more jobs than expected were created in the private sector last month, lifting hopes for the world’s number one economy.

Tokyo surged 2.20%, or 191.08 points, to 8,871.65, Seoul climbed 2.57%, or 48.34 points, to 1,929.58 and Sydney rose 0.30%, or 12.9 points, to 4,325.8.

In the afternoon Hong Kong jumped 2.50% and Shanghai soared 3.92%.

Draghi said yesterday the ECB would buy unlimited amounts of debt from troubled nations such as Spain and Italy in order to lower their cost of borrowing and help them get back on their feet – a scheme named “Outright Monetary Transactions”.

The OMTs “will enable us to address severe distortions in government bond markets which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro”, Draghi said.

“We will do whatever it takes” to keep the eurozone together, he added.

However, he said the purchases would depend on those countries asking for bailout cash and agreeing to undertake economic reforms.

The announcement “exceeded market expectations, which hasn’t happened for a long time,” said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole in Hong Kong.

“It draws a line, for a while at least, under the issue of peripheral European debt,” he told Dow Jones Newswires.

The yield on benchmark 10-year Spanish bonds fell late yesterday to 6.0%, compared with close to 7.0% at the start of the week, while Italy’s borrowing costs were at 5.2%, from 5.7% days ago.

On forex markets the euro rallied in New York after the news, surging to a two-month high of US$1.2652 at one point before ending yesterday at US$1.2629.

In early Tokyo trade it bought US$1.2636. It also rose to 99.74 yen in Tokyo, from 99.60 yen late yesterday. It was trading around US$1.2602 and 98.85 yen before Draghi’s plan.

The dollar also rose today, to 78.92 yen from 78.85 yen late yesterday.

In the United States figures from payrolls company ADP yesterday showed private-sector employment rising by 201,000 in August, after an upwardly revised July gain of 173,000.

The jobs number was well above the average forecast of 143,000, and showed a strong increase of 29,000 in the key service sector from July, to 185,000.

Also lifting sentiment were figures from the Institute for Supply Management yesterday showing its monthly purchasing managers index for the services sector rose to 53.7 from 52.6 in July, scotching worries of a downturn. A reading above 50 indicates growth.

On Wall Street the Dow climbed 1.87% and the S&P 500 advanced 2.04% – both to their highest levels since December 2007. The Nasdaq surged 2.17%.

Eyes are now on non-farm payrolls data to be released later today, which traders said were also “pointing to quite a strong read as well”.

On oil markets New York’s main contract, light sweet crude for delivery in October slipped 34 US cents to uS$95.20 a barrel and Brent North Sea crude for October shed 20 uS cents to US$113.29.

Gold was at US$1,693.40 at 0600 GMT compared with US$1,708.24 yesterday.

In other markets:

  • Taipei rose 1.34%, or 98.19 points, to 7,424.91. TSMC gained 3.33% to Tw$83.8 while Hon Hai Precision was 0.68% higher at Tw$89.0.
  • Wellington closed 0.78%, or 28.64 points, higher at 3,722.18. Fletcher Building was up 0.3% at NZ$6.50 and Air New Zealand gained 1.4% to NZ$1.13 but Telecom fell 0.6% to NZ$2.48.



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