By Sagarika Jaisinghani and Ambar Warrick
(Reuters) – Euro zone shares rose on Friday, marking a third week of gains, as data showed factory activity in February jumped to a three-year high, while upbeat quarterly earnings boosted confidence in a broader economic recovery.
The euro zone index was up 0.9%, with strong earnings from companies such as Acciona and Hermes brewing some optimism over an eventual economic recovery.
The pan-European STOXX 600 index rose 0.5%, as regional factory activity was seen reaching a three-year high on strong demand for manufactured goods at home and overseas.
Another reading showed the euro zone’s current account surplus widened in December on a rise in trade surplus and a narrower deficit in secondary income.
Still, the STOXX 600 marked small gains for the week, having dropped for the past three sessions as investor concern grew over rising inflation and a rocky COVID-19 vaccine rollout.
But basic resources stocks outpaced their peers this week with a 7% jump, as improving industrial activity across the globe drove up commodity prices.
“This week’s slightly adverse price action has all the hallmarks of a loss of momentum temporarily and not a structural turn,” said Jeffrey Halley, senior market analyst at OANDA.
“There is not a major central bank in the world thinking about taking their foot off the monetary spigot, except perhaps China. (Markets) will remain awash in zero percent central bank money through all of 2021 (and) a lot of that will head to the equity market.”
Minutes of the European Central Bank’s January meeting, released on Thursday, showed policymakers expressed fresh concerns over the euro’s strength but appeared relaxed over the recent rise in government bond yields.
The bank’s relaxed stance was justified by the euro zone economy requiring continued monetary and fiscal support, as evidenced by a contraction in the bloc’s dominant services industry in February.
The STOXX 600 has rebounded more than 50% since crashing to multi-year lows in March 2020, with hopes of a global economic rebound this year sparking demand for sectors such as energy, mining, banks and industrial goods.
London’s FTSE 100 lagged regional bourses on Friday due to a slump in January retail sales and as the pound jumped to its highest against the dollar in nearly three years. [.L] [GBP/]
French carmaker Renault tumbled more than 4% after posting a record annual loss of 8 billion euros ($9.68 billion), while food group Danone and German insurer Allianz rose following upbeat trading forecasts.
(Reporting by Sagarika Jaisinghani in Bengaluru; Editing by Sriraj Kalluvila and Shailesh Kuber)
Bank of England’s Haldane warns inflation “tiger” is prowling
By Andy Bruce
LONDON (Reuters) – Bank of England Chief Economist Andy Haldane warned on Friday that an inflationary “tiger” had woken up and could prove difficult to tame as the economy recovers from the COVID-19 pandemic, adding that central banks may need to respond.
In a clear break from other members of the Monetary Policy Committee who are more relaxed about the outlook for inflation, Haldane called inflation a “tiger (that) has been stirred by the extraordinary events and policy actions of the past 12 months”.
“People are right to caution about the risks of central banks acting too conservatively by tightening policy prematurely,” Haldane said in a speech published online.
“But, for me, the greater risk at present is of central bank complacency allowing the inflationary (big) cat out of the bag.”
Haldane’s comments prompted British government bond prices to fall and sterling to rise as he warned that investors may not be adequately positioned for the risk of higher inflation.
“There is a tangible risk inflation proves more difficult to tame, requiring monetary policymakers to act more assertively than is currently priced into financial markets,” Haldane said.
(Editing by David Milliken)
BOJ to highlight climate risks as key theme of bank tests this year – sources
By Leika Kihara and Takahiko Wada
TOKYO (Reuters) – The Bank of Japan will for the first time highlight climate change risks as among key themes in its bank examinations this year, sources said, joining major peers moving to gain research clout on the effects of global warming.
In guidelines on the examinations due next month, the BOJ will clarify its readiness to coordinate with Japan’s banking regulator in analysing the impact of climate risks on financial institutions, said three sources familiar with the matter.
The central bank will also beef up cooperation with the regulator, the Financial Services Agency (FSA), in studying European examples and specific ways to measure financial risks associated with climate change, they said.
The moves are part of Japan’s efforts to follow in the footsteps of an increasing number of countries working on or considering stress-testing financial institutions on climate risks.
“For the BOJ, green QE is still off the radar. The more approachable and near-term focus is to assess climate change risks on the financial system,” one of the sources said, a view echoed by two other sources.
“Climate change is a key theme for the BOJ this year,” another source said, adding that stress-testing climate risks on financial institutions is “not imminent, but something Japan needs to aim for in the future.”
The BOJ conducts hearing and on-site monitoring in voluntary examinations on financial institutions. But it does not have regulatory authority, which falls under the FSA. Neither the BOJ nor the FSA stress-tests banks on climate risks.
Officials of the two institutions have been discussing climate change as among topics that could affect Japan’s banking system. But progress toward stress-testing financial institutions has been slow because of a lack of data and models.
The BOJ began to gear up efforts on climate change after Prime Minister Yoshihide Suga last year pledged to make “green” investment a key pillar of his growth strategy.
The Biden administration’s focus on battling climate change, and the Federal Reserve’s decision in December to join an international central banks’ group focused on climate risks, also prodded the BOJ to engage more, the sources said.
But actual roll-out of stress tests will take at least another year as policymakers work out guidelines and details, including whether they will ask banks to conduct a “self-assessment,” the sources said.
(Reporting by Leika Kihara and Takahiko Wada. Editing by Gerry Doyle; Editing by Chang-Ran Kim)
ECB watching yield surge but not controlling curve: Lane
FRANKFURT (Reuters) – The European Central Bank is monitoring the recent surge in government bond borrowing costs but will not try to control the yield curve, ECB chief economist Philip Lane told a Spanish newspaper on Friday.
Yields have soared, particularly over the past week, partly driven by rising U.S. Treasury yields. Verbal intervention by key ECB officials, including ECB chief Christine Lagarde, has failed to stem the rally.
“At this stage, an excessive tightening in yields would be inconsistent with fighting the pandemic shock to the inflation path,” Lane said in an interview with Expansión.
“But at the same time, it is crystal clear that we are not engaged in yield curve control, in the sense that we want to keep a particular yield constant,” he added.
Ten-year Bund yields, a key benchmark for the 19-country euro zone, now yield -0.223%, up from around -0.60% at the start of the year.
Lane added that while inflation is indeed rebounding, the increase was not yet what the ECB was looking for after a decade of undershooting its target.
“What we’re seeing now is not a significant and persistent change in the path of inflation,” he said, arguing that price growth was still too low and required ECB stimulus.
Lane predicted that the bloc would start rebounding from its pandemic-induced slump already in the second quarter and the impact of the current lockdowns would be less severe than a year ago.
(Reporting by Balazs Koranyi; Editing by Shri Navaratnam and Ana Nicolaci da Costa)
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