While you were sleeping: Draghi boosts stocks

Friday 23rd October 2015

Equities on both sides of the Atlantic rallied after the European Central Bank said it was considering adding fresh stimulus measures including a potential interest rate cut, while US companies including McDonald’s posted better than expected earnings.

“While euro area domestic demand remains resilient, concerns over growth prospects in emerging markets and possible repercussions for the economy from developments in financial and commodity markets continue to signal downside risks to the outlook for growth and inflation,” ECB President Mario Draghi said in a press conference after a policy meeting.

“In this context, the degree of monetary policy accommodation will need to be re-examined at our December monetary policy meeting, when the new Eurosystem staff macroeconomic projections will be available,” Draghi said.

Europe's Stoxx 600 Index rallied to finish the day with a 2 percent gain from the previous close. The UK’s FTSE 100 Index rose 0.4 percent, France’s CAC 40 Index jumped 2.3 percent, while Germany’s DAX Index advanced 2.5 percent. German bonds also rose, while the euro weakened.

Wall Street climbed too. In New York trading at about 1.35pm, the Dow Jones industrial average climbed 1.74 percent, the Standard & Poor’s 500 Index gained 1.69 percent, while the Nasdaq Composite Index rose 1.62 percent.

"That's all that central banks have to do anymore,” Jeff Clark, trading analyst at Stansberry Research, told Reuters. “Just hint that they're going to throw easy money in there and it scares the shorts and enables the Bulls and bang! we've got these nice pops.”

In the Dow, rallies in shares of McDonald’s and those of 3M, last up 8 percent and 4.5 percent respectively, outweighed plunges in shares of UnitedHealth and those of American Express, last down 6.3 percent and 5.7 percent respectively.

Shares of McDonald’s climbed to a record high after the company posted better-than-expected quarterly earnings, underpinning confidence in the outlook.

"Third quarter marked an important step in the company's global turnaround," McDonald's Chief Executive Officer Steve Easterbrook said in a statement.

"As we begin fourth quarter, comparable sales are expected to be positive in all segments,” Easterbrook said. “While still in the early stages, we believe our turnaround plan is starting to generate the change needed to reposition McDonald's as a modern, progressive burger company.”

Shares of American Express tumbled on the company’s disappointing earnings.

Meanwhile, the latest US economic data indicated strength in housing and the jobs market. A report by the National Association of Realtors showed existing home sales climbed 4.7 percent to an annual rate of 5.55 million units in September, adding to this week's better-than-expected data on the US housing market.

A Labor Department report showed initial claims for state jobless benefits increased 3,000 to a seasonally adjusted 259,000 for the week ended October 17.

The US Federal Reserve might still have an interest rate increase up its sleeve this year, after all, with these kinds of data, some analysts said.

"The market has been a little bit quick to price out a December Fed rate hike,” Thomas Costerg, a US economist at Standard Chartered Bank in New York, told Reuters. “What you are seeing in the data is that the domestic picture looks strong and I think that's what the Fed is going to be looking at closely.”

Yields on two-year US notes slid after the Treasury Department postponed its October 27 auction.

“Due to debt ceiling constraints, there is a risk that Treasury would not be able to settle the 2-year note on Monday, November 2, 2015,” the Treasury said in a statement. The 5-year note auction, scheduled to take place on October 28, 2015 and the 7-year note auction, scheduled to take place on October 29, 2015, will proceed as scheduled, according to the Treasury.

BusinessDesk.co.nz

Comments from our readers

No comments yet