The euro succumbed to profit taking on Friday while shares were flat after Greece as expected successfully closed a bond swap needed to avert an unruly default, with market attention turning to focus on key U.S. jobs data.
Europe’s FTSEurofirst 300 index of blue chip shares was up 0.1 per cent at 1,076 by 0943 GMT, after Greece won strong acceptance from private creditors for a bond swap that will ease its massive debt burden and clear the way for a new bailout to help it meet bond payments due later this month.
“In the near term, fears of a ‘hard default’ should recede, assuming parliament votes in this legislation. But Greece’s political situation remains unstable,” said Sarah Hewin, senior economist at Standard Chartered Bank.
The FTSEurofirst index is still down from a seven-month high of 1,092 hit in late February.
Investors were betting that U.S. non-farm payrolls data for February, due at 1330 GMT, would show a third consecutive month of solid job gains. A strong figure could further dampen expectations of additional monetary stimulus from the U.S. Federal Reserve.
The data was expected to show a net gain of 210,000 jobs last month.
An unexpected rise in new U.S. weekly jobless claims on Thursday was not enough to change perceptions that the labour market is strengthening, a major catalyst for the current rally. Investors, however, were becoming cautious as weaker-than-expected jobs data could trigger a risk-off move across markets, sending stocks into reverse.
Shares on Wall Street were set to open slightly lower after rising on Thursday on expectations the Greek debt restructuring would go ahead.
In Europe, shares of banks, the biggest holders of Greek debt, were initially lifted by the Greek news, but then slipped back with Germany’s Commerzbank dipping 0.7 per cent and French bank Credit Agricole down 0.1 per cent.
Shares on the London Stock Exchange jumped 8 per cent after the bourse said it had agreed to take a majority stake in clearing house LCH.Clea rnet.
Global stocks, as measured by the MSCI world equity index , were up 0.2 per cent, giving up some earlier gains helped by rises in Asia, where stocks in Tokyo hit a seven-month high.
Oil prices held above $125 a barrel, heading for their sixth weekly gain in seven, supported by news of the Greek debt swap deal and a sharp slowdown in China’s inflation rate.
The euro was much more subdued as profit taking set in after the currency gained nearly 1 per cent against the dollar on Thursday on optimism that Greece would secure its bond swap.
The single currency was down around 0.4 per cent against the dollar at $1.32122 in early European trade.
“We think the euro is quite vulnerable at these levels. We saw a slight shift in tone from the ECB on Thursday. It is now emphasizing upside inflation risk while highlighting the downside to growth risk,” Ian Stannard, head of European FX strategy at Morgan Stanley, said.
The European Central Bank delivered a surprise warning on inflation on Thursday while at the same time lowering its growth forecast for the currency bloc. That will make it even harder for struggling economies like Greece to overcome their debt problems.
The ECB also implied it would not continue its recent support measures, which saw it inject funds into the banking system to stave off a credit crunch, calling on governments and banks to act to foster a full crisis recovery.
“There seems to be a trend developing among central banks that they are taking a far more cautious approach to providing unconventional support measures,” said Stannard. “This more cautious approach could start to weigh on the bigger global risk appetite picture.”
Greece’s successful debt restructuring gave a boost to Italian and Spanish bonds but analysts said poor euro zone growth prospects and fears Portugal may also impose losses on creditors was likely to limit the fall in yields.
Even after its bond swap, Greece carries massive debts with no sign of growth to ease the burden.
Portuguese long-term debt underperformed, with 10-year yields up 15 basis points at 14.21 per cent.
While peripheral euro zone countries struggle, German exports bounced back in January, adding to signs that Europe’s biggest economy is on a sound footing.
News that China’s inflation rate had eased to a 20-month low, giving Beijing room to further ease policy if needed, lifted commodities.
Copper rose 0.8 per cent to $8,395 a tonne on the London Metal Exchange on hopes that possible further monetary easing by China could spur demand from the world’s biggest copper consumer.
LME copper has risen more than 10 per cent this year and analysts say that unless Chinese demand perks up, the industrial metal may struggle to hold on to, or extend gains.
Mr. Stannard at Morgan Stanley said separate data on China factory output and retail sales, which also cooled more than forecast in the first two months of this year, could be more significant longer-term as it underscored the downside risks to the world’s No. 2 economy.
“Developments in China are having an impact. Australia’s trade deficit was driven by China,” said Mr. Stannard.
“The mixed data from China suggests its rebalancing (towards domestic consumption) is slowing down. Growth is relying on investment rather than expanding consumption. That could leave Europe exposed, if Germany’s exports start to be affected.”
Australia’s trade account unexpectedly dived into the red in January, data showed on Friday, as exports to China were hit, although that looked to be mainly due to the Lunar new year holiday.
The Australian dollar dipped on the data but later bounced back on the China inflation data.