Financial data at the Madrid Stock Exchange. Yields from Spain to Germany have fallen to record lows on speculation ECB will cut the deposit rate or expand its QE programme. Image Credit: Bloomberg

London: European shares put a sell-off in Shanghai stocks behind them after economic confidence in the euro area matched the highest level in four years and as speculation built the region’s central bank will boost stimulus next week. Treasuries rose as trading resumed after the Thanksgiving holiday.

The Stoxx Europe 600 Index recouped all of its 0.7 per cent slide. The Shanghai Composite Index had tumbled 5.5 per cent, its biggest retreat since the depths of a $5 trillion rout in August, dragging down emerging markets as industrial profits sank and regulators clamped down on brokers. The Swiss franc slid against all of its major peers and crude oil fell.

The better-than-estimated confidence data comes as investors assess the impact of a slowdown in China on the global economy. Yields from Spain to Germany have fallen to record lows on speculation ECB chief Mario Draghi will cut the deposit rate or expand its quantitative-easing program. That’s also weighing on the shared currency, which was set for its longest stretch of weekly declines versus the yen since the euro’s creation in 1999.

“A sizeable reduction in the deposit rate seems almost inevitable,” Commerzbank AG strategist Christoph Rieger and economist Michael Schubert wrote in a client note. To send a clear signal to the market that QE remains ECB’s preferred tool for increasing stimulus, an extension in terms of size, duration and composition is also likely, they wrote.

An index of executive and consumer confidence stood at 106.1 in November, the European Commission said Friday, and October’s reading was revised to the same level from an initial 105.9. China’s industrial profits slid 4.6 per cent last month, data showed Friday, compared with a 0.1 per cent drop in September.

The Stoxx 600 added less than 0.1 per cent at 8.10am in New York. US equity-index futures were little changed, while the yield on 10-year Treasury note fell three basis points to 2.21 per cent, with trading set to close early on Friday.

Stocks

Gains in automakers and builders offset declines in European energy producers and basic-resource companies. Trading volumes in the Stoxx 600 were 30 per cent lower than the 30-day average.

Standard & Poor’s 500 Index E-mini futures expiring in December added 0.1 per cent, with the gauge little changed on the week. The US equity market will shut at 1pm in New York on Friday.

ECB looms

The 19-nation euro headed for its biggest monthly loss since March versus the dollar as monetary policy diverges between the ECB and the Federal Reserve.

A cut of 10 basis points to the euro area’s deposit rate is fully priced in, according to futures data compiled by Bloomberg, which also shows a 15 basis-point cut is more than 90 per cent priced in.

The euro was at 129.74 yen on Friday, set to complete a seven-week slide of 5 per cent. Europe’s common currency was at $1.0583, down 3.9 per cent since Oct. 30. It slid to $1.0566 on Wednesday, the lowest since April.

Germany’s two-year yield dropped to a record minus 0.429 per cent on Friday, while the yield on similar-maturity Finnish notes fell to minus 0.384 per cent and Spain’s slid to minus 0.049 per cent, both all-time lows.

Euro-denominated investment-grade corporate bonds have returned 0.7 per cent this month, compared with a 0.3 per cent loss for comparable notes in dollars, according to Bank of America Merrill Lynch index data through Thursday. The November gains for euro debt reversed declines for the year to a return of 0.4 per cent from a loss of 0.3 per cent.

High-yield bonds in euros have returned 0.5 per cent in November, while US junk bonds have lost 2.4 per cent amid low commodity prices.

The franc slid 0.6 per cent to 1.03 per dollar as investors speculated whether the Swiss National Bank will respond to ECB stimulus by intervening to weaken its own currency. SNB spokesman Walter Meier declined to comment.

Emerging markets

The MSCI Emerging Markets Index dropped 1.2 per cent as benchmark gauges in China, Russia, Taiwan and the Philippines lost at least 1 per cent.

Hong Kong’s Hang Seng China Enterprises Index of mainland companies dropped 2.5 per cent to an almost two-month low. Some of the nation’s largest brokerages disclosed regulatory probes and two more companies said they’re struggling to repay bonds. The probe into the finance industry comes as the government widens an anticorruption campaign and seeks to assign blame for the sell-off earlier this year.

A gauge of 20 developing-nation currencies extended this week’s decline to 1 per cent, leaving it within 0.5 per cent of a record low reached on Sept. 28. Turkey, Russia and South Africa led losses over the period.

Turkey’s lira rebounded, paring its drop for the period to 3 per cent. That’s still the worst performer among 31 major currencies tracked by Bloomberg as tension with Russia over Turkey’s downing of the warplane on Tuesday spurred a sell-off earlier this week.

The South African rand slid 0.2 per cent and was down 2.5 per cent on the week in its biggest decline for the period in more than a month. Russia’s rouble dropped 0.4 per cent on Friday, extending this week’s losses to 2 per cent.

Commodities

Oil pared its first weekly advance in a month, with futures falling 1.8 per cent to $42.26 a barrel in New York as Libya said it’s making progress to resume pumping crude after more than a year and Russia ruled out military retaliation against Turkey for downing its jet near the Syrian border.

Gold fell, heading for its sixth straight week of losses, the longest such streak since August. Bullion for immediate delivery was down 0.7 per cent at $1,064.98 an ounce, according to Bloomberg generic pricing.

Nickel dropped 3.3 per cent in London, zinc slumped 2.1 per cent and copper slipped 0.4 per cent.