By Marc Jones
LONDON (Reuters) - Santa made a lackluster attempt to deliver his traditional end of year rally on Thursday, as world stocks squeezed out a third day of gains and the pound and the euro both stayed firm after the latest bout of Brexit drama.
UK Prime Minister Theresa May's survival in a late night no-confidence vote has not changed the markets' questions on Brexit but along with tentative signs of truces in the U.S.-China trade war and Italy's budget feud it was enough to keep them jolly.
The Nikkei and other Asian stocks had pushed roughly 1 percent higher and Europe enjoyed a largely uneventful morning. (EU) Even the long-awaited confirmation that the European Central Bank was ending its quantitative easing program did little to rouse activity.
The euro rose 0.2 percent to $1.1390, having largely traded in a $1.16 and $1.12 range since August. That made the dollar a touch softer while the pound was up for a second day at $1.2665. [/FRX]
"The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary," the ECB said.
Though the ECB will technically now stop QE, it will still keep buying German, Italian and other euro zone bonds, possibly for years, using proceeds from the $2.6 trillion mountain of debt it has bought over the last few years.
Analysts were now waiting to hear what signals Mario Draghi sends at his 1330 GMT news conference. Next year will be his last in charge of the ECB.
Morgan Stanley (NYSE:MS) FX strategist Hans Redeker said all eyes would be on Draghi and the ECB's messaging. "It may revise its growth projections lower but continue to prepare the markets for allowing QE to end."
Short-dated Italian bond yields - which move inversely to price - hit their lowest in six months after the country's government confirmed it would cut its deficit goal for 2019, potentially ending months of wrangling with Brussels.
Italian Prime Minister Giuseppe Conte said the deficit goal had been lowered to 2.04 percent of gross domestic product from the 2.4 percent it had originally proposed, and it expected the European Commission to accept the proposal.
Two-year Italian bond yields tumbled to 0.51 percent, which took them back to where they were before a late May eruption of tensions triggered the worst day for short-term Italian debt in 25 years. [GVD/EUR]
Italy's five-year and 10-year government bond yields dropped to their lowest level in 2 1/2 months, while the closely watched Italy/Germany 10-year bond yield spread improved to its tightest since the start of October.
"I think the momentum can carry on in the near term as we have a number of supportive factors for Italian debt beyond just the hopes the budget deal can be reached," said Commerzbank (DE:CBKG) rates strategist Christoph Rieger.
On Brexit, May was heading to an EU summit in Brussels after her confidence vote win to try and secure some additional concessions on the controversial Irish border aspect of the agreement to placate rebels within her own party and Northern Irish Ulster Unionist allies.
Markets reckon May’s continued premiership for now makes a "no deal" Brexit less likely at the margins, and her survival takes at least some of the immediate headline risk out of the market – even if the parliamentary impasse over the terms of Brexit looks no closer to being resolved.
The pound was trading at $1.2670 as the first U.S. trading started, still well up more than cent from the 20-month lows set early Wednesday, and at about the levels seen just before the results of the confidence vote on Wednesday night.
FULL OF BEANS
In Asia, gains were concentrated in Chinese shares, with Chinese blue-chips up 1.5 percent and Hong Kong's Hang Seng index gaining 1.1 percent.
Japan's Nikkei stock index ended 1 percent higher, while Australian shares gained 0.1 percent.
Markets are slowly becoming less pessimistic about the chances of a Sino-U.S. trade deal after a slew of news this week pointed to easing tensions between the two big powers.
Reuters reported on Wednesday that Chinese state-owned companies had bought more than 1.5 million tonnes of U.S. soybeans in the first major U.S. soybean purchases in more than six months.
The purchases are the most concrete evidence yet that China is making good on pledges made when presidents Donald Trump and Xi Jinping met on Dec. 1 and agreed to a 90-day detente to negotiate a trade deal.
But markets have been stung by false dawns in the past. Yoshinori Shigemi, a global market strategist at JPMorgan (NYSE:JPM) Asset Management, cautioned against reading too much into trade headlines.
"U.S.-China trade negotiations are subject to very high uncertainty. So lots of headlines come and go, and markets come and go also," he said. "We have to see the evolution of this negotiation."
In the commodities markets, oil prices steadied, under pressure from high inventories but buoyed by a drawdown in U.S. crude stockpiles and the indications that the U.S.-China trade war may be easing.
Copper, which is highly sensitive to China's fortunes, also rose to a one-week high in the metals market at it approached $6,200 a tonne although it remains badly beaten having lost almost 15 percent this year.
"Signs of positive progression in trade talks between the U.S. and China should see sentiment in the commodity market remain positive," analysts at ANZ wrote in a note.