The euro struck a fresh 12-year low on Monday and euro zone stocks reached new peaks on bets that the currency’s relentless fall will boost corporate earning prospects just as the rising dollar hits those of US firms.
German stocks powered above 12,000 points for the first time, while the main pan-euro zone benchmark indices hit new seven-year highs.
The euro rebounded as European trading got underway, however, while US oil prices recovered after slipping to a fresh six-year low, although they were still down on the day.
This week’s focal point for global financial markets is the US Federal Reserve’s policy decision on Wednesday, with the euro/dollar exchange rate likely to remain the dominant driver for major equity, currency and bond markets until then.
“With dollar momentum this strong and investors unlikely to ride any euro rally ahead of the (Fed) meeting, risks for the euro are still to the downside for the next couple of days and any bounces are likely to be limited,’’ Unicredit FX analysts said on Monday.
In early European trading the euro was up 1/3 of a per cent against the dollar at $1.0530, having slid to $1.0457 early in the Asian session, its lowest since January 2003.
ECB bond-buying programme
The euro has lost roughly a quarter of its value versus the dollar since mid-2014 and suffered its biggest weekly fall since September 2011 last week, shedding 3.2 per cent as the European Central Bank launched its trillion euro money-printing scheme.
Goldman Sachs now sees the euro at $0.80 by the end of 2017.
European, Asian markets
European stocks took heart. Germany’s DAX was up 0.85 percent at 12,001 points, France’s CAC 40 half a per cent higher at 5,039 points, and Britain’s FTSE 100 index up 0.25 per cent at 6,758 points.
The FTSEurofirst 300 index of top European shares rose 0.3 per cent to 1,584 points and the euro zone top 50 stocks index was up 0.5 per cent at a seven-year high of 3,673 points.
MSCI’s broadest index of Asia-Pacific shares outside Japan closed a few ticks higher, while Chinese shares outperformed to hit five-year-highs.
The CSI300 index and the Shanghai Composite Index both rose more than 2 per cent after Premier Li Keqiang said Beijing had scope to adjust policies to help boost the world's second largest economy.
Japan’s Nikkei hit a 15-year high of 19,349 points.
Fed monetary policy
Recent weak US inflation and retail sales data have not derailed expectations that the Fed will tighten monetary policy, and the prospects that higher rates and a stronger dollar will hit US corporate profits have dragged on shares.
Wall Street futures were seen opening 0.2 per cent higher on Monday, lagging Europe’s main bourses.
Many observers expect the Fed to remove its pledge to remain “patient’’ on delivering its first interest rate hike since 2006, with economists polled by Reuters almost evenly split on whether a first hike will come in June or later in the year.
German 10-year Bund yields inched up 1 basis point to 0.265 per cent, having hit a record-low 0.188 per cent last week. Longer-dated German yields fell, however, and benchmark Spanish, Italian and Portuguese yields were also headed back towards their recent record lows.
The ECB is expected to buy more sovereign bonds as part of its stimulus programme this week, limiting any upward pressure on bond yields.
“The current dynamic is incredible, logical and extendable ... until something changes, but there is little sign of that right now,’’ Citi rates strategist Mark Schofield said.
Oil prices continued to tumble, with US crude dropping more than 2 per cent at one point to a six-year low on fears of oversupply. The International Energy Agency had said on Friday that a global glut of oil is growing and U.S. production shows no sign of slowing.
US crude was last down about 0.8 per cent at $44.48 a barrel, while Brent was 0.6 per cent lower at $54.32.
After snapping its longest daily losing streak since 1973 on Friday with a first rise in 10 sessions, gold consolidated its gains. Bullion was flat on the day at $1,158 an ounce.