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Shares edge higher after Ukraine bailout

The euro fell on Thursday and peripheral European government bond yields hit their lowest levels in years as speculation grew that the European Central Bank may ease monetary policy soon.

Emerging market stocks edged higher and Ukraine’s sovereign government bonds rose after the International Monetary Fund said it had agreed a $14-18 billion bailout for the country.

European shares fell, tracking Wall Street lower, but the focus in other European markets was on whether the eurozone’s central bank might act to bolster the economy. ECB Governing Council member and Bundesbank chief Jens Weidmann said earlier this week negative interest rates were an option to temper euro strength and buying loans and other assets from banks to support the bloc was not out of the question.

His comments surprised investors given the German central bank’s long-held resistance to quantitative easing. ECB President Mario Draghi said on the same day that the bank stood ready to act if inflation slipped lower than it expected. “(The falls in yields are) driven by the latest ECB comments,” ING rate strategist Alessandro Giansanti said. Since the start of the year high-yielding peripheral bonds have outperformed benchmark German bunds and US Treasuries. The euro fell 0.15 per cent to $1.3759 while it lost slightly more against the yen to 140.33. The dollar was broadly firmer. Spanish 10-year yields hit a new eight-year low of 3.271 per cent, Italian yields a new 8-1/2 year low of 3.327 per cent, while Portuguese yields a new four-year low of 4.091 per cent.

All of these countries were seen at the leading edge of the eurozone debt crisis before the region’s fortunes began to improve. Italy’s 10-year government bonds were the biggest performing asset so far this year after gold and commodities.

MSCI world equity index fell 0.1 per cent, driven by European stocks which were down about 0.3 per cent. Technology shares sharply fell on Wall Street, led by Facebook and King Digital Entertainment, the maker of the wildly popular “Candy Crush Saga” game.

King’s stock fell 15.6 per cent to close at $19 in its trading debut on Wednesday after the initial public offering valued the company at about $6 billion. Emerging stocks nudged higher after the IMF’s deal for Ukraine, which was widely expected, was announced. Ukraine’s sovereign government bonds rose 1-2 cents on the dollar.

US crude oil fell 0.15 per cent to $100.09 a barrel.