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While you were sleeping: ECB exceeds expectations

Friday 23rd January 2015

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Equity markets climbed after European Central Bank President Mario Draghi delivered a larger-than-expected quantitative easing program worth more than 1 trillion euros in an effort to fuel the euro-zone economy and ward off deflation.

The ECB said it plans to buy 60 billion euros worth of assets per month, starting in March until at least the end of September 2016. Most of the purchases will be government securities but there will be some corporate assets in the mix too.

“People were hoping for more and they got more,” Stephen Macklow-Smith, head of European equity strategy at JPMorgan Asset Management in London, told Bloomberg News. “This will push investors into higher-yielding assets. Draghi was careful not to exclude the option of extending the program if inflation remains below target. We should have more faith in the euro zone recovery.”

The Stoxx Europe 600 Index ended the day with a 1.7 percent gain from the previous close. The UK’s FTSE 100 Index increased 1 percent, Germany’s DAX Index rallied 1.3 percent, while France’s CAC 40 Index rose 1.5 percent.

"All eyes were on Mario Draghi and he has delivered a bigger bazooka than investors were expecting," Mauro Vittorangeli, a fixed income specialist at Allianz Global Investors, told Reuters.

The euro dropped, falling as low as US$1.1404, the lowest level in more than 11 years. 

"When you have every central bank in the world trying to stimulate the global economy, that's a tough thing for asset prices to fight against," Wayne Kaufman, chief market analyst at Phoenix Financial Services in New York, told Reuters.

Sovereign bond prices also rose as the ECB’s program makes them more scarce. Yields on German 10-year debt fell eight basis points to 0.45 percent, while yields on French 10-year notes slid nine basis points to 0.62 percent.

“Diminished stocks of high-quality assets will put downward pressure on yields, particularly in an environment where there’s strong competition among central banks and institutional investors,” Christopher Sullivan, chief investment officer at United Nations Federal Credit Union in New York, told Bloomberg News. “We have to look forward to low yields among the developed economies for a period of time.”

Wall Street advanced too. In afternoon trading in New York, the Dow Jones Industrial Average added 0.69 percent, the Standard & Poor’s 500 Index rose 0.61 percent, while the Nasdaq Composite Index climbed 0.81 percent. 

Gains in shares of JPMorgan Chase and those of Goldman Sachs, each up 2 percent recently, led the Dow higher. 

Initial claims for state unemployment benefits fell 10,000 to a seasonally adjusted 307,000 for the week ended January 17, Labor Department data showed.

Shares of American Express dropped, last down 3 percent, after the company on Wednesday announced it would slash more than 4,000 jobs. 

So far, 73.7 percent of S&P 500 companies have topped earnings expectations while 53.9 percent have beaten on revenue, according to Thomson Reuters data.

"We're satisfied with the earnings season, not disappointed or impressed," Rex Macey, chief allocation officer at Wilmington Trust Investment Advisors in Atlanta, Georgia, told Reuters. "However, we're not seeing anything that looks like a screaming buy."

 

 

 

 

BusinessDesk.co.nz



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