According to the news report by MarketWatch, the European Central Bank (ECB) has decided to end crises-era bond buys by December of this year and also keep interest rates low for another year. This led to a surge in stock prices across Europe.
The decision reached by the ECB to finally end the easy-money program thanks to improving economies across the continent was not a surprise. However, the Euro getting beaten up was due to the rather conservative approach the European Union’s policy makers took in its plan to return to normal.
According to market analysts, the shock announcement that the Central Bank would not change interest rates till at least the middle of 2019 is what pushed down the price of the Euro. Alex Lydall, Foenix Partners’ head of corporate FX, sent out a note to clients, in which he said it wasn’t what was said that drove the Euro down, as much as how it was said. He said that the decisive comments made by Mario Draghi, the president of the ECB, were not his usual style.
The ECB announced that it would continue its buy-back program of €30 million (~$34.84 million) worth of bonds every month right up to the month of September, as planned. However, from October, that sum will be reduced to €15 million (~$17.42 million) and the buy-backs will continue at that price till the end of December. The buy-backs will then end in December.
The ECB also announced that it planned to continue reinvesting the principle payments that it would get from securities that were maturing which had been bought under the asset-purchase program for an extended period of time, even after the net asset buy-backs have ended. This reinvestment will continue for as long as policy makers deem it necessary to provide enough accommodation.
As far are interest rates are concerned, the ECB announced that they would continue to remain at their all-time lows till at least the middle of 2019.
Thanks to these announcements, the stock market saw gains all around. The STOXX Europe 600 went up by 1.2% to 393.04 points, which made Thursday its best day since April 5 – in terms of percentage gains. The index also hit its highest close since May 22.
Germany’s DAX 30 rose by 1.7% to 13,107.10 points, which was the highest the index closed in the last three weeks. The French CAC 40 was also up by 1.4% to close at 5,528.46 points. The Spanish IBEX 35 gained 0.6% to go up to 9,957.70 points, while the Italian FTSE MIB also gained 1.2% to close at 22,486.32 points.
England’s FTSE 100 also went up by 0.8% to close trading at 7,765.79 points.
The Euro dropped to $1.1688, down from a high of $1.1852. By the end of the trading day, the currency had settled at $1.1791.
Mario Droghi, the president of ECB stated in a later press conference that the bank now sees the European Union’s growth at 2.1%, which is down from the previous forecast of 2.4%.
However, things settled down by Friday morning, with most stocks pulling back after their Thursday rally that had been pumped by the ECB announcements.
According to CNBC’s Friday morning report, the STOXX Europe 600 fell by 0.22% in morning trading, while UK’s FTSE 100 dropped 1.70%. The German DAX fell 0.74% and the French CAC slipped 0.48%.
Banking stocks dropped by more than 1% and household goods’ stocks gained about 0.3%. The company that led gains in the European stock markets was Rolls Royce, which went up more than 9%.