European shares put a sell-off in Shanghai stocks behind them after economic confidence in the eurozone matched the highest level in four years and as speculation built the region’s central bank would boost stimulus next week. US Treasuries rose and stocks fluctuated as trading resumed after the Thanksgiving holiday.
The STOXX Europe 600 Index recouped almost all of its 0.7 percent slide. The Shanghai Composite Index had tumbled 5.5 percent, its biggest retreat since the depths of a US$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 European Central Bank (ECB) President Mario Draghi will cut the deposit rate or expand its quantitative easing program. That has also been 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 sizable 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 quantitative easing remains the 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 this month, the European Commission said on Friday, and last month’s reading was revised to the same level from an initial 105.9.
Declines in European energy producers and basic-resource companies offset gains in telecommunications stocks and drugmakers. Trading volumes in the STOXX 600 were 31 percent lower than the 30-day average.
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