Asian shares soar after ECB, focus on payrolls

Reuters: Asian shares were on track for their biggest daily gain in six weeks on Friday after the European Central Bank outlined its plan to calm the euro zone’s debt crisis and firm US data fed speculation of a strong jobs report later in the day.

European equities will likely extend gains modestly after rallying to six-month highs on Thursday, with financial spreadbetters calling London’s FTSE 100, Paris’s CAC-40 and Frankfurt’s DAX to open as much as 0.1% higher.

MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 1.7% and was set for a weekly gain of 0.7%. Japan’s Nikkei average jumped 2% after US stocks closed at multi-year highs.

China shares jumped sharply, led by machinery companies after the approval of 60 infrastructure projects this week in a bid to bolster growth. The Shanghai Composite Index rose 4.4%, while Hong Kong advanced 2.4%.

“I think it’s the relief rally that a lot of people have been looking for,” said Simon Twiss, partner at Arnhem Investment Management. “People are looking for those macro headlines and they got confirmation last night.”

Market sentiment also improved after US private employment rose more than expected in August and growth in the services sector gathered pace, boosting expectations for a better reading in the government’s nonfarm payrolls report due later on Friday. Employers were likely to have added 125,000 jobs in August.

An improved labour market would reduce pressure on the Federal Reserve to take an aggressive easing step at its September 12-13 policy meeting, such as a third round of bond buying known as quantitative easing (QE), to underpin growth.

Spot gold fell 0.6% to $1,690.70 an ounce after touching its highest in six months on Thursday. Gold has been supported by expectations of more Fed easing.

“People spent the whole of yesterday buying gold and it is a bit overcooked up here. Now we have good data and the market is struggling to see how it can get bad payrolls data,” said a Singapore-based bullion trader.

The euro traded at $1.2637, not far from a near 10-week peak of $1.2652 hit on Thursday. It stood at 99.72 yen, just off a two-month peak at 99.80 yen touched on Thursday.

Risk-sensitive commodity currencies were firmer, with the Australian dollar up 0.3% to $1.0312. In turn, the safe-haven Japanese yen was on the defensive, trading at 78.94 yen near its two-week low of 79.04 yen seen on Thursday when the dollar rose on higher US Treasury yields.

“There was no ‘selling the fact’ (after the ECB), probably because currencies followed the rally in stocks. It appears markets are warming up to a risk-on mode,” said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo.

“Markets may be sensing that while it takes time to deliver, things will get done eventually. Also, firm US data put great emphasis on the payrolls data today,” he said.

Asian credit markets gained strongly, with the spread on the iTraxx Asia ex-Japan investment-grade index tightening by 7 basis points.

The ECB agreed on Thursday to launch a new and potentially unlimited bond-buying programme, focused on bonds maturing within three years in countries implementing approved fiscal austerity measures.

ECB President Mario Draghi said the plan would not target specific bond yields and that debt purchases would be suspended if countries did not comply with the terms.

“The market rally reflects the last stage of an unwinding of extremely pessimistic positions over Europe but this euphoria won’t last long,” said Kazuto Uchida, an executive officer and general manager of the global markets division at the Bank of Tokyo-Mitsubishi UFJ.

“The ECB again merely bought time. There is no change to the underlying situation -- that monetary policy can’t resolve the issue of Europe’s structural reforms and fiscal consolidation.”

Uchida also noted concerns about the ECB taking too much risk and uncertainty over the feasibility in applying strict conditionalities attached to the actual bond buying.

With markets overcoming a tail risk of the ECB failing to match expectations, the CBOE Volatility index plunged 12% on Thursday for its sharpest one-day drop in nearly 10 weeks. Its decline typically suggests growing risk appetite.

US crude shed 0.4% to $95.13 a barrel and Brent fell 0.3% to $113.17, weighed by a possible US release of emergency oil reserves and profit-taking from recent gains ahead of the US payrolls data.