Euro falters, stocks jump as ECB holds off on rate hikes

Euro hits two-year low but equities jump nearly 1.5 per cent

Traders on the floor of the New York Stock Exchange. Photograph: Brendan McDermid/Reuters

Traders on the floor of the New York Stock Exchange. Photograph: Brendan McDermid/Reuters

 

European stocks jumped more than 1 per cent on Thursday, while the euro slumped against the dollar, after the European Central Bank indicated it would not raise interest rates through summer 2019.

The bank’s unexpectedly dovish guidance on interest rates overshadowed its statement that it aimed to wrap up its crisis-era stimulus programme, quantitative easing, at the end of this year. The ECB now plans to reduce monthly asset purchases between October and December to €15 billion until the end of 2018 and then conclude the programme, although ECB president Mario Draghi stressed that the governing council stood ready “to adjust all its instruments as appropriate”.

DUBLIN

The Iseq rose 49 points to 7,178, roughly tracking other European indices. The main mover was Smurfit Kappa, which rose 3.6 per cent to €34.73. This follows the company’s recent rejection of two takeover bids from rival International Paper, which has now dropped its bid. Paddy Power Betfair, meanwhile, rose 1 per cent to €98 as the World Cup in Russia kicked off. The biggest sporting event of the year is expected to see an upswing in betting with the company in June.

Shares in oil explorer Providence rose 4.6 per cent to 13.5 cent in the wake of its agm. Bank of Ireland fell again, however, this time by less than 1 per cent to €7.05 while rival AIB was down by a similar margin at €4.96. Iseq heavyweight Ryanair was also down slightly at €16.05.

LONDON

Britain’s main stock index rose on Thursday after the ECB signalled interest rates would remain steady through next summer, easing investors’ concerns about tightening monetary policy.

The Ftse 100 climbed 0.8 per cent to a three-week high, having fallen as much as 0.7 per cent earlier when a more hawkish rates outlook from the US Federal Reserve weighed on equities. High dividend-yielding healthcare stocks, which are sensitive to interest rates, boosted the index, while “bond proxy” consumer goods stocks, including Imperial Brands and British American Tobacco, also gained. In notable single-stock moves, Unilever shares fell 2.8 per cent after the consumer goods giant said a truck drivers’ strike in Brazil would hit sales more than expected. Rolls Royce shares surged 6.5 per cent, the biggest boost to the index, after the engine maker announced it would cut 4,600 jobs, targeting £400 million of annual savings in a restructuring effort that investors welcomed. Pharmaceutical company GlaxoSmithKline gained 2.3 per cent after its two-drug treatment for HIV met its main goal in late-stage studies. “At face value this is good news as competition in the HIV space has heated up, threatening GSK’s highest-margin business.”

EUROPE

The pan- European Stoxx 600 and the euro zone Stoxx jumped 1.4 and 1.3 per cent respectively, while the exporter-heavy German index gained 1.7 per cent as the euro fell to a session low following the ECB’s statement. Along with France’s CAC 40, they had their strongest gains since April 5th.

Interest-rate sensitive sectors such as autos and utilities surged, while the euro zone’s banking stocks, which suffer from low interest rates, fell 0.2 percent, among the only stocks in negative territory. Germany’s Commerzbank, Spain’s Bankia, and Italy’s Unicredit were the biggest fallers, down 1.2 to 2 per cent. “It’s a disappointment” for banks, said BNP Paribas’s Shing, adding that the ECB’s negative deposit rate costs banks money. “The faster the deposit rate gets back to 0, the better for banks’ profitability.”

NEW YORK

US stocks also ticked higher on Thursday in the wake of Frankfurt’s move. Seven of the 11 major S&P sectors were higher, led by a 1.2 per cent gain in the telecom services index. Comcast jumped 2.9 per cent after the company offered 21st Century Fox $65 billion to lure it away from a merger with Walt Disney. Disney also rose 1.9 per cent, providing the biggest boost to the Dow Jones Industrial Average. Oracle dropped 4.1 percent after Nomura cut its price target on the business software maker’s stock. Advancing issues outnumbered decliners for a 1.31-to-1 ratio on the NYSE and for a 1.23-to-1 ratio on the Nasdaq. The S&P index recorded 27 new 52-week highs and one new low, while the Nasdaq recorded 119 new highs and 19 new lows.

– Additional reporting by Reuters