Euro drops and bonds rally after Lagarde hints at new stimulus

Italian bonds were among the leaders of a rally in lower-rated eurozone debt sparked by Christine Lagarde’s signal that the European Central Bank will act in December to respond to the bloc’s deteriorating economic outlook.

The euro fell against the dollar and the pound after Ms Lagarde, the ECB president, said there should be “little doubt” monetary policymakers were prepared to “recalibrate” their tools at the next meeting in December.

Markets had already been anticipating a roughly €500bn boost to the ECB’s vast bond-purchasing programme as governments across the bloc launch new restrictions to curb the spread of coronavirus.

Yields on Italy’s 10-year bonds fell 0.06 percentage points to 0.7 per cent, while the yield on the equivalent Portuguese bond slipped 0.04 percentage points to 0.11 per cent.

The single currency slipped 0.5 per cent to $1.1683, its lowest level in about one month. It was down 0.1 per cent against the pound at 90.3p.

Europe’s main equities bourses wavered between gains and losses on Thursday. The French CAC 40 was flat, Germany’s Dax climbed 0.4 per cent and the FTSE 100 rose 0.1 per cent.

In the US, the S&P 500 index traded 0.7 per cent higher after data showed the American economy rebounded in the third quarter and jobless claims dropped more than expected last week. That followed a drop of 3.5 per cent for the blue-chip index on Wednesday, its biggest one-day loss since June.

US economic output rose 7.4 per cent in the July to September period compared with the previous three months. It shrank 9 per cent in the second quarter. The pace of US growth was “faster than anticipated”, said Richard Flynn, UK managing director at Charles Schwab, “but activity has some way to go before returning to its pre-Covid peak”.

Initial US jobless claims fell to 751,000 last week, below the 775,000 claims forecast by economists, although the number remains at historically high levels as the country faces a fresh rise in coronavirus cases.

Oil headed for its worst week since April, driven by concerns that stricter Covid-19 measures will hobble demand for fuel. Brent crude slipped a further 3 per cent to $37.74 a barrel on Thursday, taking the global benchmark’s fall for the week to 10 per cent.

For the oil market “demand concerns are likely to be chief among the bearish factors at play at present”, said analysts at JBC Energy.

Supply is also rising following the end of an oil export embargo in Libya, leading many analysts to bet that Opec and its allies will have to delay plans to add back oil production in January.

“One can only wonder how long until Opec+ announces the rollover of the current output ceiling,” said Tamas Varga at oil brokerage PVM in London.

Additional reporting by David Sheppard in London

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