Euro spikes, stocks firm after Draghi comments

Last Updated: Thu, Feb 06, 2014 17:00 hrs

Stocks around the world were on Thursday having one of their better days of late as investors prepared for a key U.S. jobs report, while the euro spiked higher after the European Central Bank decided to not cut interest rates as some traders had been expecting.

For weeks, stock markets have been on the back-foot as turmoil engulfed emerging economies and the U.S. Federal Reserve continued to cut down the size of its monetary stimulus. However, on Thursday, the market's animal spirits were in the ascendant, with stocks posting big gains a day ahead of the U.S. nonfarm payrolls report for January. The figures often set the market tone for a week or two. The consensus in the markets is that the U.S. created around 180,000 jobs during January.

"If we are right, this should calm nerves and provide some further support to the equity market after its recent slide," said Jessica Hinds of Capital Economics.

Germany's DAX stock index closed up 1.5 percent at 9,256.58 while the CAC-40 in France rose 1.7 percent to 4,188.10. The FTSE 100 index of leading British shares ended 1.6 percent higher at 6,558.28, itself unaffected from the Bank of England's widely anticipated decision to keep monetary policy unchanged.

On Wall Street, the Dow Jones industrial average was up 0.6 percent at 15,586 while the broader S&P 500 index rose 1 percent to 1,769. Much of the focus in the U.S. centered on Twitter, which saw its share price slide by a fifth after an after-hours statement Wednesday showed a slowdown in the rate of growth of new monthly users.

Ahead of the jobs data, investors digested the latest policy statement from the European Central Bank. Surprising many, it opted to do nothing, keeping its benchmark interest rate unchanged at the record low of 0.25 percent despite the anemic economic recovery in the 18-country eurozone and stubbornly low inflation.

In the ensuing press conference, ECB President Mario Draghi said the bank was willing and able to do more. However, he said the bank needed to garner more evidence and was looking to see the first estimate of eurozone economic growth in the fourth quarter of 2013 and next month's set of forecasts from its staff.

"The surprising thing today was just how hawkish Draghi's press conference was," said Craig Erlam, market analyst at Alpari.

He noted that Draghi made much of the fact that medium-term inflation expectations were well-anchored around the ECB's target of just below 2 percent and that the recovery was showing positive signs.

Draghi's comments weren't enough to shake out the positive vibe in European stock markets but they lit a fuse under the euro, which surged around a cent to trade 0.5 percent higher on the day at $1.36.

How the euro closes out the week will likely hinge on Friday's U.S. jobs data, with a strong report potentially bolstering the dollar as investors price in the likelihood of a further stimulus withdrawal by the Fed.

Earlier in Asia, the main focus was Australia, where both the stock market and currency jumped after encouraging economic data. Australia's S&P/ASX 200 rose 1.2 percent to 5,129.20 and the Australian dollar rose to its highest in more than three weeks after the government reported a surprise trade surplus in December. Economists had been expecting a deficit.

Elsewhere, Japan's benchmark Nikkei 225 index closed 0.2 percent lower at 14,155.12 while South Korea's Kospi climbed 0.9 percent to 1,907.89 and Hong Kong's Hang Seng advanced 0.7 percent to 21,423.13.

Markets in China remained closed until Friday because of Lunar New Year holidays.

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