ECB bond-buying scheme announcement boosts world markets
Asian shares looked set for their biggest daily gain in nearly five weeks on Friday after the European Central Bank outlined its bond-buying scheme to help calm the Euro zone's debt crisis, while firm US data fed speculation of a strong jobs report later in the day.
MSCI's broadest index of Asia-Pacific shares outside Japan climbed 1.3% and was set for a weekly gain of 0.3% after European shares rallied to six-month highs and US stocks closed at multi-year highs on Thursday.
The ECB agreed on Thursday to launch a new and potentially unlimited bond-buying program, focused on bonds maturing within three years in countries implementing approved fiscal austerity measures.
ECB President Mario Draghi said the plan would not target specific bond yields. Debt purchases would follow on from the bank's Securities Markets Program that has been dormant since March, and would be suspended if countries did not comply with the terms.
Government bond yields in highly indebted Spain and Italy fell while safe-haven US Treasury and German bond yields jumped, as the ECB's plan was seen reducing the risk of the Euro zone unravelling under the weight of the debt crisis.
While Mr Draghi was announcing the ECB plans, German Chancellor Angela Merkel was meeting Spanish Prime Minister Mariano Rajoy for talks on the Euro zone crisis. In a joint news conference afterwards, Mrs Merkel said: We have to restore confidence in the Euro as a whole, so that the international markets have confidence that member countries will fulfil their commitments.
Mr Rajoy said: We want to dispel any doubts on the markets about the continuity of the euro.
Jens Weidmann, president of Germany's Bundesbank, remains vigorously opposed to the ECB plan, concerned that member states could become hooked on central bank aid and fail to reform their economies sufficiently. But the majority of the 23 ECB council members support the plan.
Market sentiment also improved after US private employment rose more than expected in August and growth in the services sector gathered pace, boosting expectations for a better reading in the government's non-farm payrolls report due later on Friday. Employers were likely to have added 125,000 jobs in August.
An improved labour market would reduce pressure on the Federal Reserve to take an aggressive easing step at its September 12-13 policy meeting, such as a third round of bond buying known as quantitative easing, to underpin growth.