Global stocks rally after ECB stimulus move

Stocks rallied around the world and the euro fell after the European Central Bank vowed to use all tools available to support a recovery that it sees hindered by recent turmoil in emerging markets.

Euro-area government bonds surged after President Mario Draghi said the European Central Bank raised the cap on the proportion of bonds it’s able to purchase, expanding the scope of stimulus even as it cut forecasts for growth.

US stocks rose for a second day, as investors get a break from declines driven by China The Standard and Poor’s 500 Index added 1.2 per cent to 1,972.98 by mid-morning in New York, after rising 1.8 per cent yesterday.

The Dow Jones Industrial Average rose 189.59 points, or 1.2 per cent, to 16,540.97.

The Nasdaq Composite Index gained 1 per cent. “Draghi said all the right things and the other issue that’s positive is that China is not going to be down because they’re closed for two days,” said Phil Orlando, chief equity-market strategist at Federated Investors in New York.

“The big issue is tomorrow is this August payroll report and it’s really the last big number before the Fed meeting.” ECB President Mario Draghi earlier unveiled a revamp of quantitative easing to allow for more purchases of each euro member’s debt as the weaker global outlook prompted a wholesale reduction of officials’ economic forecasts through 2017.

Mr Draghi said the emerging-market rout threatened global expansion and that consumer prices may barely grow this year. The action by the ECB came as some reassurance to investors who have been spooked by global growth concerns.

China’s surprise currency devaluation on August 11th sparked worries that the world’s second-largest economy was headed for a deeper slowdown, roiling markets around the world.

Speculation that the Federal Reserve could raise interest rates as soon as this month, even as growth abroad slows, added to the anxiety.

“People are basically trading headline after headline right now, and Draghi’s comments about raising QE was good, but then you see deflation coming and cutting the GDP forecast and that’s not good,” said Larry Peruzzi, director of international trading at Cabrera Capital Markets in Boston.

“Deflation seeping into the markets is a little bit of concern, it eats away at profit margin and it gets to be a difficult downward cycle to break.”

US data on Thursday showed filings for unemployment benefits rose more than forecast to an eight-week high, representing a pause in a trend of more muted firings.

A separate report showed growth at service industries from retailers to restaurants hovered in August near the strongest in a decade. Attention will also focus on the government’s August non-farm payrolls report, due on Friday, as a major data point before the Fed meets later this month. The central bank is likely to raise interest rates this month, which will trigger a rally in equities, Bank of America said in a report .

“If they don’t hike, it’s an admission that Wall Street threatens to reverse the recovery on Main Street,” the firm said.

Traders don’t agree, as they price in a 28 per cent chance for a September increase, down from 38 per cent at the end of last week