World stocks extend gains

World stocks and the euro started the final month of the year on a positive note as a Spanish debt sale saw good demand and a liquidity move by major central banks raised hopes policymakers would take more steps to tackle the crisis.

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World stocks and the euro started the final month of the year on a positive note on Thursday as a Spanish debt sale saw good demand and a liquidity move by major central banks raised hopes policymakers would take more steps to tackle the crisis.

Spain's government bond yields fell following the auction, a day after the world's six major central banks said they would lower the cost of existing dollar swap lines, and arrange bilateral swaps to provide liquidity for other currencies.

Investor focus has now moved to a key European meeting on December 9 to see whether euro zone policymakers will follow through with measures to solve the debt crisis.

Poland's Finance Minister Jacek Rostowski, whose country holds the rotating European Union presidency, said on Wednesday EU finance ministers expect the ECB to step in forcefully to calm bond markets if leaders agree to move towards fiscal union then.

But caution ahead of the summit was enough to keep top-rated German government bonds supported and weigh on some equity indexes.

“As is the case so often these days, the focus probably was to just get the job done. In that respect the auction was successful,” said David Schnautz, rate strategist at Commerzbank.

“However, looking at the yields we do not expect the auction to prop up sentiment. Without a game-changing solution, all small steps in the right direction will probably rather get used to offload peripheral bonds.”

MSCI world equity index rose 0.6 percent, gaining for four consecutive sessions, to a two-week high. The index is still down around 8.6 percent since January.

European stocks slipped a quarter percent while emerging stocks gained 3 percent. US stock futures fell 0.3 percent, pointing to a weaker open on Wall Street later.

“There's relief with the coordinated bank action, but people are now asking why have they done it. You can trade into it, but you will probably sell out of it,” said Justin Urquhart Stewart, director at Seven Investment Management.

“That sort of enthusiasm just shows how much pent-up frustration there is. There's a huge amount of value there, if you're a bit more confident. But we would also have to see a follow-through (action on the euro zone debt crisis) at the EU meeting next week.”

US crude oil added 0.3 percent to $100.64 a barrel.

The dollar was steady against a basket of major currencies while the euro gained 0.3 percent to $1.3486.

“The auction went well, adding support to the euro and adding to yesterday's short-covering rally,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange.

“Expectations are crystalising that the summit will be make or break time for the euro zone.”

Bund futures rose 11 ticks.

Spain sold a maximum target of 3.75 billion euros of government bonds and saw some significantly improved bid/cover ratios compared with previous actions after its yields in the secondary market moved away from record highs in the past week.

Its borrowing costs at the auction were still the highest in 14 years.

The 10-year Spanish/German government bond yield spread narrowed to 383 basis points compared to 393 bps before the auction. The equivalent Italian spread tightened by the same amount to 465 bps.

The three-month euro/dollar cross currency swap spread - a key gauge of interbank funding stress - fell further to 122 basis points.

The swap spread reached a three-year high of 167 basis points before the central bank move as European banks starved of dollar funding from US counterparts rushed to procure dollars in the FX swap market. - Reuters

Source: http://www.iol.co.za/world-stocks-extend-gains-1.1190583

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