Asian stocks hit, euro shines after ECB wrong-foots traders

TOKYO/SINGAPORE: Asian shares joined a slump in global markets on Friday after the European Central Bank's stimulus package fell well short of markets' high expectations, sending the euro rocketing on its way to its biggest one-day surge in nearly seven years.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.8 percent, extending losses for the week to 0.4 percent.

Japan's Nikkei tumbled 1.9 percent, the biggest daily drop since Nov. 2, and was on track for a weekly loss of 1.7 percent, the most in three months.

China's CSI300 index slipped 0.9 percent, shrinking gains for the week to 4.6 percent.

On Thursday, Wall Street's benchmark S&P 500 stock index had its biggest one-day percentage decline since Sept. 28, dropping 1.4 percent. The pan-European stock index of FTSEurofirst 300 shed 3.3 percent, the biggest fall since Aug. 24.

The drama started after the ECB cut its deposit rate deeper into negative territory and extended its asset buying by six months.

Its rate cut of 0.10 percentage point, to -0.30 percent, was smaller than a 0.15 to 0.20 percentage point cut many traders expected.

The central bank did not increase the amount of government bonds it buys while the six-month extension of the programme was perceived as bare minimum, given traders looked for an extension of one year or even making it an open-ended plan.

"It's like doing so much sweet talking before your marriage that you set it up to be a big disappointment," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

The package sent traders scrambling to unwind short euro positions which they had built since late October when the ECB chief Mario Draghi said there would be another round of stimulus measures.

The euro jumped 3.1 percent on Thursday, posting its biggest single-day gain since March 2009. The common currency last traded at $1.0920, down 0.2 percent from late US levels but still near its one-month high of $1.0981 hit on Thursday.

That took the dollar's index against a basket of six major currencies down to a one-month low of 97.591 overnight, before bouncing back to 97.990 on Friday.

The euro's rebound also helped to lift other currencies against the dollar, with European currencies outperforming.

The British pound rose 1.2 percent to $1.5144 while the Swiss franc gained 2.4 percent to 0.9933 franc on the dollar on Thursday. The yen gained 0.5 percent to 122.61 per dollar, and was last trading at 122.55.

The Chinese yuan too firmed against the dollar, with the People's Bank of China setting the midpoint rate at 6.3851, the strongest gain in a month.

The spot market opened at 6.3867 per dollar and was last changing hands at 6.3971.

Global bond yields shot up, with the 10-year US notes yield rising to as high as 2.347 percent from 2.178 percent overnight.

The yield on 10-year German Bunds surged about 20 basis points to 0.666 percent from 0.474 percent on Wednesday, the biggest jump since late April.

Investors are now turning their attention to the US jobs data, which is likely to cement expectations that the Federal Reserve will hike interest rates later this month, barring surprisingly weak readings.

Federal Reserve Chair Janet Yellen, speaking before Congress' Joint Economic Committee on Thursday, said the United States may be "close to the point at which we should be raising" rates.

She also said the US economy needs to add fewer than 100,000 jobs a month to cover new entrants to the workforce, perhaps setting an implicit floor for jobs growth that policymakers want to see.

That would be a fairly low bar given that economists' median forecast was 200,000, when even the most conservative forecast in a Reuters poll of more than 100 economists was 150,000.

US money market futures hardly budged after the ECB, pricing in about a 75 percent chance of a rate hike this month and possibly two more rate hikes next year.

Also attracting investor attention was the OPEC meeting later on Friday. Crude oil prices rose about 3 percent on the eve of the meeting, as traders, although expecting no cuts in oil production, hedged their positions.

Brent crude futures climbed to $44.09 per barrel, having bounced back from Wednesday's three-month low of $42.43.

Precious metals also rebounded, with gold rising 0.8 percent on Thursday after hitting a near six-year low of $1,045.80 per ounce earlier in the day.

It last stood at $1,062.32, up slightly on the day and is on course to post its first weekly gain in seven weeks.

The expected rise in US rates and slowing Chinese demand are hurting copper, which is staring down the barrel of an eight consecutive weekly decline.

Three month London copper last traded at $4,556.50 a tonne, hovering around the six-year low seen on Nov. 23, and was on track for a weekly loss of 0.3 percent.