Sydney (Reuters): The euro, Asian stocks and commodities jumped in a relief rally on Monday after global financial authorities agreed to save debt-swamped Ireland and protect Europe’s wider financial stability.
An agreement from the EU and the IMF to lend Ireland cash to ,tackle its banking and budget crisis gave investors a reason to buy back some assets sold off earlier this month.
But investors stayed cautious and gains were moderate, in part because they did not want to risk year-to-date profits, with Europe still saddled with fiscal trouble spots such as Portugal and Spain.
The pan-European FTSEurofirst 300 index of top shares opened up over half a percent.
“There are still a lot of issues in Europe,” said Alex Boggis, who heads fund manager Aberdeen’s business in Hong Kong. Aberdeen manages around $15 billion in Hong Kong and China.
“The focus of attention will move around Europe until there are no problems left but that might be some time, so there’s going to be volatility for sure.”
At the heart of the euro zone’s debt woes is investor anxiety about whether the bloc will continue to rescue its fiscally weak members. It has already spent 110 euros saving Greece, and Ireland’s bail-out is expected to cost about 80-90 billion euros.
Still, the Irish bail-out brought some cheer and helped the euro to climb as far as $1.3766, up from $1.3683 late in New York on Friday. It now faces resistance at $1.3770.
The softer U.S. dollar benefitted commodity and metal prices. Copper was firm and oil rose to above $82 a barrel. Spot gold added $6.60 to $1,360.75 an ounce, up from $1,353.50 in New York on Friday.
The genial mood reverberated through stock markets.
The Asia-Pacific MSCI index of shares outside Japan .MIAPJ0000PUS added 0.7 percent, but stock investors seemed more keen to buy laggards rather than pile into star performers.
Between sectors, the information technology sector .MIAPJIT00PUS led gains with a 2 percent rise, but on the year it has fared the worst with just a 3.4 percent gain -- way behind a 31 percent jump in consumer discretionary stocks .MIAPJCD00PUS.
It was the same between countries. Japan’s Nikkei , which has straggled its Asian peers this year, ended up 0.9 percent at five-month highs. .T
Buoyant equity markets dulled the appeal of safer government debt, and as investors braced themselves for more new supply.
U.S. two- and five-year Treasury note futures fell, while 10-year Treasury notes futures were mixed.
The excitement around Ireland overshadowed for now China’s policy tightening on Friday, when it took aim at inflation by raising banks’ required reserves ratio to a record high.
With talk swirling that China may tighten policy still further, China’s stock index see-sawed in choppy trade. In the past, Chinese policy tightening has sent global stock and commodity prices reeling as investors worried a slowdown in the world’s second-biggest economy could take a toll on demand.
Indeed, data from EPFR Global showed market anxiety around China’s policy helped to pull $5.6 billion from global equity funds in the week ending November 17.
And while investors still wanted to profit from the booming Chinese story, they also played it safe. EPFR data showed investors would rather not have direct exposure to China, preferring instead to hold stocks in the Greater China market.
Sean Darby, Nomura’s Asia strategist in Hong Kong, agreed that was a good way to invest in China in coming months.
“The best thing to be doing is go into companies that are benefitting from China’s growth externally. It is easier to be managing policy risk through companies that are more diversified,” he said.