Monday 19 February 2018

Markets higher on Mario Draghi comments

Richard Hubbard

THE euro and European shares turned decisively higher today and German bond prices fell after European Central Bank President Mario Draghi said his bank was ready within its mandate to do whatever it took to preserve the single currency.

U.S. stock index futures moved higher as well pointing to a stronger start on Wall Street.

Speculation had been rising that the ECB, which holds a policy meeting next week, is considering new measures to tackle the euro zone's debt crisis as countries such as Spain and Italy struggle to fund themselves and evidence grows of a region-wide economic slowdown.

"Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough," Mr Draghi told a pre-Olympic games investment conference in London.

In a reference to the high premiums peripheral European nations including Spain are forced to pay to raise funds, Mr Draghi said: "To the extent that the size of the sovereign premia hamper the functioning of the monetary policy transmission channels, they come within our mandate."

The euro hit the day's high of $1.2177 after the comments were made, from around $1.2130 beforehand.

The FTSEurofirst 300 index of top European company shares was up 0.3pc at 1,021.14 points and prices for 10-year German bonds fell, sending the yield to 1.3pc from about 1.23pc prior to the statement..

Before the speech the problems of Spain and Greece had dominated market attention.

European Commission President Jose Manuel Barroso is due to hold talks with Greek premier Antonis Samaras in Athens later, as a group of international lenders try to decide whether to keep releasing funds from a €130bn bailout package or let the country go bust.

Mr Barroso's visit comes after Citi economists raised the likelihood of Greece leaving the euro zone in the next 12-18 months to 90pc from a 50-75pc chance previously.

Investors are also worried about Madrid's ability to keep funding itself from the capital markets in the face a sharp slowdown in its economy and growing calls for help from struggling regional governments.

Spain's 10-year government bond yields edged down to around 7.2pc, but still remain close to their euro era highs of 7.75pc and at levels deemed unaffordable in the long term.



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