With hopes that Portugal’s request for a bailout from the European Union, European shares rose on Thursday. The financial aid request came after some urging from top bankers to help put a stop to debt crisis in the region, help the economy and secure the banking system. As a European Central Bank interest rate hike is anticipated, the euro dipped. The FTSEurofirst 300 stock index gained 0.25%.
Other reasons that may affect debt crisis are still considered but other struggling nations like Spain are unlikely to be caught up. IG Index sales trader Will Hedden said, Portugal was known to be going that way but it is a bit early to say everything stops with Portugal. World stocks in MSCI were flat while emerging markets retreated a bit from recent rally and fell 0.25%. Energy shortage and domestic-demand on stocks caused Nikkei to dip 0.7%.
Portugal’s financial help request comes when ECB is about to increase interest rates because of mounting inflationary pressure. ECB benchmark is expected to increase by 25 basis points to 1.25%. After enjoying an 11-month high versus the yen, 14-month high versus the dollar, the euro fell. It may have been due to not seeing future hike series signals from the ECB.
Credit Suisse FX strategist Koji Fukaya said the euro has rallied considerably on the ECB rate hike view but it may be a case of: buy the rumor, sell on the fact. The euro zone debt crisis has not stopped the ECB’s hawkish comments. Meaning, Portugal’s story is not going to stop a rate hike, added Fukaya.
German government bonds moved lower following Portugal’s bailout request while euro was at $1.4284 and 121.80 yen. Portuguese 10-year bonds’ yield dipped faintly.