Published: Monday August 20, 2012 MYT 6:43:00 PM
Report on ECB bond plan helps shares
LONDON: European shares edged higher on Monday, helped by a report that the European Central Bank could buy bonds of euro zone countries if borrowing costs rose over certain limits to try and solve the debt crisis. However, the euro fell slightly against the dollar and the yen after the German central bank reiterated its opposition to bond purchases and a spokesman for the finance ministry said it was not aware of any plans to target bond spreads. European and global markets have had a recent strong run on hopes that a new plan being drawn up by the ECB, the central bank overseeing the 17 countries that use the euro, could help the currency bloc tackle its problems. Top European stocks were up 0.07 percent by mid morning, having closed at 13-month highs on Friday following their best week in seven years. The main indexes in the region were little changed with London down 0.1 percent but Paris and Frankfurt safely in positive territory. The MSCI global share index was up 0.1 percent at 0915 GMT and U.S. stock index futures pointed to a slightly higher open on Wall Street. "We are fishing in the fog at the moment so we need to see some more of the meat regarding the ECB's plans," said Heinz-Gerd Sonnenschein, equities strategist at Germany's Postbank. "Shares have risen a lot since June even though the earnings outlook has been downgraded, so progress from here very much depends on the sovereign debt crisis," he said. Investor appetite for Spanish, Italian and other peripheral debt also picked up, at the expense of German bonds. Germany's der Spiegel magazine said over the weekend that the ECB's new bond buying plan, due to be detailed at the start of September, could see the bank setting upper limits on bond spreads, above which it would start buying. Spanish two-year yields have already fallen sharply since ECB President Mario Draghi said on July 26 that the bank would do whatever it takes to preserve the euro, fuelling expectations the central bank would restart its bond buying programme. However, policymakers remain in the early stages of thrashing out the details of any plan. Some experienced ECB watchers doubt whether the central bank would set a bond price threshold as European laws ban it from financing governments. "Critical details about such a new instrument remain unclear - at least until the ECB's September meeting," said Commerzbank strategists in a note.
GREECE MEETING With many European policymakers on summer holidays, investors have had a respite from negative headlines. This week's focus is on a meeting between leaders of Greece and Germany on Friday as well as details of Spain's 'bad bank' plans, due to be announced on the same day. The first August reading of closely watched, forward looking purchase manager index (PMI) data will come out from the euro zone on Thursday until then data will be thin on the ground. Away from Europe's equities and bond markets, oil prices hovered at $114 per barrel, supported by tight North Sea supplies ahead of the closure of a key UK oilfield for maintenance and on expectations of more demand before the northern hemisphere winter. Platinum rose to its highest in more than six weeks as supply worries lingered after violence at a major mine in South Africa, while gold firmed a touch. Corn prices rose to their highest in more than a week, resuming a recent rally on supply concerns arising from the U.S. grain belt's worst drought in 56 years. Wheat edged in the other direction as the market took a breather after gaining for three straight sessions on fears of tightening global supplies and expectations of curbs on exports from the Black Sea region. - Reuters