While you were sleeping: ECB extends asset purchases

Friday 9th December 2016

Wall Street climbed to fresh records as optimism about the outlook for the US economy prevailed, while European Central Bank President Mario Draghi announced an extension of the central bank’s quantitative easing program.

In 1.11pm trading in New York, the Dow Jones Industrial Average increased 0.43 percent, while the Nasdaq Composite Index rose 0.36 percent. In 12.56pm trading, the Standard & Poor’s 500 Index added 0.3 percent.

The Dow touched a record-high 19,656.26, while the S&P 500 climbed to a record 2,250.52 and the Nasdaq hit a record 5,425.52.

"The market is projecting a lot more confidence in future growth, and I don't expect any big pullback to derail the rally until the end of the year," Chris Story, senior trader at Manulife Asset Management in Boston, Massachusetts, told Reuters.

The Dow moved higher, as gains in shares of Goldman Sachs and those of Walt Disney, recently trading 1.8 percent and 1.7 percent higher respectively, outweighed slides in shares of Pfizer and those of United Technologies, down 0.8 percent each.

Shares of Lululemon jumped, last up 15.5 percent as of 1.13pm in New York, after the maker of yoga clothing reported better-than-expected quarterly sales and profit. It also upgraded its outlook for the year.

“Lululemon’s strong top-line results showed that concerns about an athletic slowdown do not apply to them,” Citigroup analyst Paul Lejuez said in a note to clients, according to Bloomberg. “Concerns in the market about too much clearance online were proven to be overblown/misunderstood.”

The latest US jobs data were solid. A Labour Department report showed US jobless claims fell by 10,000 to 258,000 in the week ended December 3.

The Federal Reserve is widely expected to announce an increase in interest rates at the end of its two-day meeting on December 14.

In Europe, the Stoxx 600 Index ended the session with a 1.2 percent increase from the previous close. The UK’s FTSE 100 Index advanced 0.4 percent, France’s CAC 40 Index gained 0.9 percent, while Germany’s DAX Index rallied 1.8 percent.

The European Central Bank announced an extension of its bond-buying program through the end of 2017, while it also flagged a reduction in its monthly purchases.

ECB President Mario Draghi signalled policy makers are prepared to boost the program, if needed.

The central bank said it will ease its monthly asset purchases to 60 billion euros from April, down from the current 80 billion euros a month, until the end of December 2017, “or beyond, if necessary.”

“If, in the meantime, the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment of the path of inflation, the Governing Council intends to increase the program in terms of size and/or duration,” the ECB said in a statement.

The euro fell, while German bonds rose.

“The ECB and Mario Draghi did their best to confuse markets by feeding both the hawks and the doves,” Jim Smigiel, chief investment officer for alternative strategies at SEI Investments, told Bloomberg. “We see the market’s obsession with a ‘taper’ as being misplaced and view this as a strong commitment to the current extraordinary monetary policy.”

BusinessDesk.co.nz

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