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Euro holds drop as ECB week begins with all eyes on China stocks

Monday, November 30, 2015 - 07:15
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The euro maintained losses, headed for its worst month versus the dollar since March amid prospects European policy makers will further ease monetary policy this week.

[WELLINGTON] The euro maintained losses, headed for its worst month versus the dollar since March amid prospects European policy makers will further ease monetary policy this week. Chinese stocks are in focus following Friday's selloff, sparked by concern over regulatory probes into local brokerages.

Expectations the European Central Bank will reduce its deposit rate and expand the region's asset-purchase program on Thursday has weighed on the euro, which is trading around its weakest level in more than seven months against the greenback.

Commodity-linked currencies also held losses after oil and industrial metals resumed their rout on Friday, despite a shortened trading day following Thanksgiving in the US The biggest American exchange-traded fund tracking Chinese stocks sank the most since August on Friday.

Investors are likely to be jolted from their Thanksgiving week torpor by a slate of key economic events this week.

As well as the ECB meeting, Federal Reserve Chair Janet Yellen appears before Congress ahead of November payrolls data on Friday.

With odds of an interest-rate increase from the Fed in December above 70 per cent, the focus is shifting to policy divergence and how other central banks may respond to US policy tightening. Shanghai-traded shares slumped the most in three months Friday as some of the country's biggest brokerages said they were under investigation for alleged rule violations.

"After last week's doldrums, this week's agenda will come as a shock to the system," Raiko Shareef, a markets strategist in Wellington at Bank of New Zealand Ltd, said in a client note. "Front of mind will be the ECB's policy decision. The US employment reports will garner interest, but only a disastrous result would likely derail the FOMC from raising rates next month."

Citic Securities Co, Haitong Securities Co and Guosen Securities Co are being probed for alleged breaches of rules on margin and short-selling contracts, according to exchange filings by the companies on Sunday. Shares of Citic and Guosen plunged by the daily limit on Friday, while Haitong was suspended from trading. Carrying on from the Shanghai Composite Index's 5.5 per cent slide, the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF dropped 7.3 percent last session, the most since Aug. 24. All three firms have said they will cooperate with the regulator and operate as normal.

Currencies The euro was little changed at US$1.0589 as of 7.34am. Tokyo time, after weakening 0.5 per cent last week. The common currency is on track for a 3.8 percent loss in November, the most since a 4.2 per cent tumble in March. The ECB is looking to bolster stimulus in order to prop up sluggish inflation in the euro area, a potential policy move that puts it at odds with the Fed.

The Bloomberg Dollar Spot Index, a gauge of the U.S. currency against 10 major peers, jumped 0.4 per cent Friday to bring its weekly advance to 0.5 percent. The index has climbed 2.3 per cent this month as bets on a U.S. rate hike started to be ratcheted up.

The Australian dollar was steady at 71.92 US cents following a 0.4 per cent drop Friday, while its New Zealand counterpart traded at 65.32 US cents, headed for a 3.6 per cent decline in the month.

Currencies of raw material-exporting countries - from Canada to Norway and Malaysia - weakened Friday. The Bloomberg Commodity Index sank back to a 16-year low amid losses of more than 1 percent in metals such as copper and nickel. West Texas Intermediate crude ended Friday down 3.1 per cent from Wednesday levels, to US$41.71 a barrel.

Stocks New Zealand's S&P/NZX 50 Index, the first major stock gauge to start trading in the Asian region, added 0.1 per cent, following last week's 1.5 per cent advance to a record high.

Futures on Australia's S&P/ASX 200 Index were little changed, while those on the Kospi index in Seoul dropped 0.3 per cent on Friday. Nikkei 225 Stock Average futures traded in Osaka climbed 0.1 per cent by 3am on Saturday, local time.

Hang Seng Index futures climbed 0.3 per cent with those on the Hang Seng China Enterprises Index, a gauge of mainland stocks listed in Hong Kong. FTSE China A50 Index futures were down 0.2 per cent in most recent trading.

The Standard & Poor's 500 Index rose 0.1 per cent to 2,090.11 on Friday, after failing to move more than 0.2 per cent on each of the previous three trading days. Volumes were 65 per cent below the 30-day average given the early market close and Thursday's holiday.

Japan reports a raft of data on Monday, including retail trade and industrial output, while central bank chief Haruhiko Kuroda is due to speak. Sri Lanka updates on consumer prices, India posts third-quarter gross domestic product data and markets in the Philippines are closed for a holiday.

BLOOMBERG

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