While you were sleeping: Stocks advance on ECB reports

Thursday 22nd January 2015

Equities on both sides of the Atlantic rose after reports that the European Central Bank plans to spend 50 billion euros a month on debt purchases to stoke the languid euro-zone economy and ward off deflation.

European Central Bank President Mario Draghi and his Executive Board proposed spending 50 billion euros a month through December 2016, Bloomberg News reported, citing two euro-area central-bank officials. The plan still faces a tense debate in the Governing Council and may change before the final decision on Thursday, according to the report.

European equity markets rebounded from losses after the report.

The Stoxx Europe 600 Index finished the day up 0.6 percent, recovering from losses of as much as 0.8 percent earlier in the session. Germany’s DAX Index advanced 0.4 percent, France’s CAC 40 Index climbed 0.9 percent, and the UK’s FTSE 100 Index gained 1.6 percent.

"The timing and duration of bond purchases is just as important as the actual amount, if not more important," Clem Miller, portfolio manager of Wilmington International Funds in Baltimore, told Reuters. "There are also a lot of questions about asset distribution, since the market is expecting a lot of government bond purchases, and it would be disappointed if it was more slanted to corporate bonds.”

Not to be outdone by the Swiss National Bank last week, the Bank of Canada shocked forex markets by unexpectedly lowering its key rate on overnight loans between commercial banks by a quarter point to 0.75 percent.

"The considerably lower profile for oil prices will be unambiguously negative for the Canadian economy in 2015 and subsequent years," the Bank of Canada said in its quarterly Monetary Policy Report.

Canada’s benchmark stock index climbed 1.9 percent, while the Canadian currency weakened to its lowest level since 2009.

“It’s a shocker,” Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, told Bloomberg News. “It is an aggressive move. It speaks volumes about where the Bank of Canada sees the economy and inflation going.”

Wall Street advanced. In afternoon trading in New York, the Dow Jones Industrial Average rose 0.24 percent, the Standard & Poor’s 500 Index gained 0.67 percent, while the Nasdaq Composite Index added 0.44 percent.

There was good news on the real estate front, a part of the US economy that has so far been lagging in the overall recovery.

Housing starts rose 4.4 percent in December from a month earlier to an annual rate of 1.089 million, according to the Commerce Department. Single-family housing starts, which account for the largest share of the market, accelerated to a rate of 728,000, the highest since March 2008.

"The last piece of the economic puzzle is starting to come together now as housing construction is coming back,” Chris Rupkey, chief financial economist at MUFG Union Bank in New York, told Reuters. “The housing market is continuing to heal.”

The Dow moved higher as gains in shares of UnitedHealth and those of Intel, up 2.7 percent and 1.4 percent respectively, outweighed slides in shares of IBM and those of Microsoft, down 3.1 percent and 1 percent respectively.

Shares of IBM dropped after the company offered a forecast for 2015 earnings that failed to meet expectations.

“Transitions are not easy,” Daniel Ives, an analyst at FBR & Co, told Bloomberg News. “It’s like trying to turn around a cruise ship in a river. IBM is in a boat where they really need to focus on the next generation area of spending.”

BusinessDesk.co.nz

Comments from our readers

No comments yet