Dovish Draghi helps lift European stocks to June highs

17 June, 2018, 05:47 | Author: Brooke Harris
  • An electronic board showing the Nikkei share average is seen as market prices are reflected in a glass window at the Tokyo Stock Exchange in Tokyo. — Reuters pic

Markets had been expecting the details to come at the July meeting, however the news that the bank plans to reduce the amount of its monthly asset purchases from €30bn a month to €15bn from September, before stopping them completely by the end of the year, was more or less in line with expectations.

But he injected a note of caution by making the step "subject to incoming data confirming our medium-term inflation outlook".

The purchases would then be wound up completely after December.

The ECB is expected to say its $3.00 trillion bond-buying policy has done its job in bringing the 19-member currency bloc back from the brink of collapse, according to Reuters.

The council intends to maintain its policy of reinvesting the principal payments from maturing securities purchased under the APP for an extended period of time after the end of the net asset purchases, and for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.

Interest rate on the main refinancing operations, marginal lending facility, and the deposit facility were unchanged today at 0.00 percent, 0.25 percent and -0.40 percent respectively.

Its chief economist, Peter Praet, said last week economic data was making the European Central Bank more confident that inflation would converge to its target of just under 2 percent and policymakers would decide this week whether progress was sufficient.

The S&P-ASX 200 index ignored the subdued 0.3 per cent gain on Wall Street last night and jumped 77.4 points, or 1.29 per cent, to 6094 as bargain hunters piled on on relief the European Central Bank would not compound pressures on the global economy from US Federal Reserve rate hikes.

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"We didn't discuss when to raise rates", ECB President Mario Draghi said at a news conference following the central bank's policy meeting.

Hong Kong stocks ended lower, after the Fed raised interest rates and struck a more hawkish tone, while downbeat Chinese data and renewed trade war fears curbed risk appetite. That pace is expected to continue over 2019 and 2020.

Price growth surged to 1.9 percent in May, with higher oil prices the biggest factor lifting it to the ECB's target.

As the stimulus is ended and then withdrawn over a period of years, those effects will go into reverse, though investors do not seem too anxious just yet: the DAX rallied 1.7 percent on Thursday. "It is certainly a possibility now". Yet, it seems that the European Central Bank has made a decision to look through some of the short-term concerns.

The New Zealand dollar rose against a broadly weaker euro after the European Central Bank said it may not hike interest rates until late 2019 while stronger United States retail sales data also helped lift the greenback.

The 30-year bond last rose 14/32 in price to yield 3.0434 percent, from 3.066 percent Thursday.

The ECB's bond purchases were a way of pushing newly created money into the economy. "All this removes some uncertainty from markets and supports risk-taking over the second half of June", said Societe Generale analyst Guy Stear.

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