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Traders work in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, July 19, 2017.

Shares rise, euro near 14-month high ahead of ECB

WT24 Desk

LONDON- World shares hovered at record highs on Thursday, as a cautious-sounding Bank of Japan lifted Asian stocks to a near decade peak and Europe bet on an incremental increase in confidence from the European Central Bank at its latest meeting, Reuters reports.

The euro was near a 14-month high as ECB head Mario Draghi’s 1230 GMT post-meeting news conference approached, where the main question will be how close the bank is to winding down its 2 trillion euro stimulus programme.

The early wave of share buying that had followed Asia’s overnight milestone was also beginning to ease up, having put MSCI’s 47-country All World index .MIWD00000PUS on track for a 10th straight session of gains, its longest winning streak since February 2015.

Wall Street’s S&P 500 ESc1, Dow Jones 1YMc1 and Nasdaq NQc1 markets also looked set to squeeze out slim gains [.N], even as bond yields – the key driver of global borrowing costs – edged higher again. [GVD/EUR]

They were lifted as oil prices LCOc1 held the near 2 percent gains they had made the previous session when falling U.S. crude inventories gave the market a lift ahead of a key OPEC meeting next week. [O/R]

The day’s focus though was squarely on the Japanese central bank’s decision to push back its ambitious inflation target again and on whether European Central Bank head Mario Draghi would hint at the plans for its 60 billion-euro-a-month stimulus programme.

“They are going to try and not upset markets,” said Nick Gartside, international Chief Investment Officer of fixed income at JP Morgan Asset Management.

“I think the real action is going to be the September meeting. That is when we probably get a little bit of news on tapering.”

ECB President Draghi opened the door to policy tweaks in a speech last month that was viewed as unexpectedly hawkish, sending the euro EUR= and government bond yields rallying.

The euro EUR= is up almost 10 percent so far this year but and was a shade lower at $1.1511 ahead of Draghi’s news conference, having hit a 14-month high of $1.1583 on Tuesday. [/FRX]

“It may be as we approach $1.20, which is realistic let’s be honest, that it generates a little more alarm for the ECB,” Gartside added.

The yen meanwhile had weakened to 112.325 per dollar JPY=D4 after the BOJ pushed back its projected timing for hitting its 2 percent inflation target until 2020.

With both its main rivals down, the dollar rose for a second straight day climbing 0.25 percent .DXY against a broader basket of trade-weighted peers.

It was helped too as sterling fell back below $1.30 GBP=D3 after renewed talk of Britain leaving the EU without a replacement trade deal, which offset slightly better-than-expected retail sales numbers. [GBP/]

EU Brexit negotiator Michel Barnier also said this week’s round of negotiations with the UK showed a “fundamental divergence” on how to guarantee citizens’ rights after the split and that the two sides were not yet at the stage of compromises.

Em Currencies Wilt

The other main FX mover was the Australian dollar AUD=D4 as it set a new two-year high, still heady from an upbeat Reserve Bank of Australia earlier in the week. It eventually pulled back though to trade at $0.7909 in Europe.

Emerging market currencies also ran out of steam with South Africa’s rand, which steadied after a heavy tumble earlier this month, dropping again and lira down 0.2 percent TRY= amid a war of words between Turkey and Germany over the latter’s criticism of activists’ arrests. [EMRG/FRX]

In Eastern Europe, the region most vulnerable to ECB policy tightening, currencies slipped versus the euro and bond yields rose off multi-month lows. [CEE/]

The Polish zloty PLN= has been one of the world’s top performing currencies this year following a pick up in the country’s growth, but it has faced pressure this week on the possibility of European Union action against Warsaw over a controversial judicial shake-up.

In commodities, Brent crude futures LCOc1, the international benchmark for oil prices, were flat at $49.75 per barrel. U.S. West Texas Intermediate (WTI) futures CLc1 also barely budged at $47.18. [O/R]

Gold XAU= slipped to $1,237 an ounce as the dollar pulled higher, while government bonds, also seen as safe-haven assets, saw modest selling ahead of the ECB meeting.

Southern European government bonds underperformed better-rated peers having closed the gap with Germany – the bloc’s benchmark – to the tightest level in months in recent days.

Italian, Portuguese and Spanish government bonds are seen as the biggest beneficiaries of the central bank’s ultra-loose monetary policy stance of the past few years, and some worry that the market is not fully reflecting the increased risk these countries now face if the ECB moves towards tighter policy.

“We have seen very little impact on peripheral spreads since Sintra but this could change very rapidly in a short period of time if the messaging is a bit too hawkish today,” said DZ Bank strategist Daniel Lenz.

Quarterly earnings will continue to be the main focus for U.S. markets with analysts estimating an 8.7 percent rise in second-quarter earnings and a 4.6 percent increase in revenue for the S&P 500 companies from a year earlier, according to Thomson Reuters I/B/E/S.

Microsoft (MSFT.O) Visa (V.N), eBay (EBAY.O), Capital One Financial (COF.N) are due to report results after the closing bell.

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