ECB bond purchases boost equities, euro slumps

GMT 22:21 2015 Thursday ,22 January

Arab Today, arab today ECB bond purchases boost equities, euro slumps

Stock exchange in Frankfurt
London - AFP

European stocks rallied Thursday on the ECB's announcement it will inject over 1.0 trillion euros of stimulus into the stagnant eurozone economy, while the euro sank against the dollar.
The pledge by European Central Bank chief Mario Draghi to buy 60 billion euros ($69 billion) of bonds per month exceeded market expectations that the monthly pace of the quantitative easing, or QE programme of asset-purchases would be 50 billion euros.
Frankfurt's DAX 30 climbed 1.32 percent to a new record close of 10,453.62 points, while the CAC 40 in Paris shot up 1.52 percent to 4,552.80 points.
The Milan stock market jumped 2.44 percent and Madrid 1.70 percent in value.
In Britain, which is not part of the eurozone, the FTSE 100 index of top companies rose 1.02  percent to end the day at 6,796.63 points.
In foreign currency trading, the euro sank against the dollar to $1.1401, its weakest level since early November 2003, around 1700 GMT following the ECB announcement compared with $1.1620 beforehand.
The programme of sovereign bond purchases comes after eurozone inflation turned negative in December, stoking fears that the 19-nation eurozone is on the brink of a dangerous deflationary spiral of falling prices.
"Mario Draghi has been left with little choice than to begin a more robust than expected quantitative easing programme in a bid to awake the economies of the eurozone from their slumber," said Dennis de Jong, boss of trading site
- 'Roll of the dice' -
"This play is seen by many as the last roll of the dice for the beleaguered euro. QE has had some success in the US and UK, but with such a patchwork of economies and banking systems in the eurozone, the jury is very much out.
"There will be a lot of people holding their breath over the coming months," he said.
The ECB chief also kept the door wide open to further purchases.
"They are intended to be carried out until end-September 2016 and will in any case be conducted until we see a sustained adjustment in the path of inflation," Draghi told a news conference.
The purchases, due to start in March, will thus total slightly more than 1 trillion euros.
"Given the importance of market effects as a key aspect of QE, the initial market reaction could be a strong steer to its ultimate impact," said Jonathan Loynes, chief European economist at research consultancy Capital Economics ahead of the decision.
Meanwhile eurozone government bond yields fell on the prospect of massive ECB purchases.
The rate of return to investors on benchmark Spanish 10-year bonds hit a record low of 1.397 percent before closing at 1.405 percent, down from 1.530 percent the night before.
The yield on Italian 10-year bonds was at 1.549 percent near its record low of 1.548 percent, down from 1.691 percent on Wednesday.
French 10-year bond yields ended the day at 0.617 percent after touching a low of 0.587 percent, compared with 0.704 percent the day before.
The ECB's strong move also gave a boost to shares on Wall Street.
The Dow Jones Industrial Average added 0.62 percent to 17,662.29 points in mid-day trading in New York.
The broad-based S&P 500 rose 0.61 percent to 2,044.58, while the tech-rich Nasdaq Composite gained 0.83 percent at 4,706.38.
Before the ECB announcement, Asian markets had extended their rally this week, with Tokyo adding 0.28 percent, Sydney rising 0.49 percent, and ending the day Seoul flat.
Hong Kong rose 0.70 percent and Shanghai gained 0.59 percent.


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