Saturday 20 January 2018

ECB signals send shares, bonds higher, euro fall

President of the European Central Bank Mario Draghi
President of the European Central Bank Mario Draghi

EUROPEAN stocks rose and the euro fell on Thursday as the region's top central banks pledged not to let stimulus withdrawal in the United States and renewed euro zone tensions derail the bloc's recovery.

The European Central Bank kept its rates at a record low of 0.5pc and the Bank of England left UK rates unchanged, also at 0.5pc. 

However, both central banks accompanied their decisions with unprecedented guidance about the future direction of policy, making clear any interest rate rises were a long way off.

ECB President Mario Draghi sent the euro to a five-week low of $1.2907 when he said rates in the currency bloc would stay where they are for an extended period or even fall.

"The Governing Council expects the key ECB rates to remain at present or lower levels for an extended period of time," Draghi told a news conference.

The Bank of England, after new governor Mark Carney's first policy meeting, earlier released a statements saying it could take steps if the recent rise in bond yields, which came after the US central bank outlined plans to cut back its stimulus, persisted.

Sterling fell 1.3pc after the statement to $1.5074, its lowest since May 29, while London's FTSE 100 rallied sharply and was last up 2.9pc.

European shares rose 2.26pc, their biggest one-day jump for 10 weeks, helping lift MSCI's world equity index by 0.5pc.

U.S. markets were closed for the Independence Day holiday had made gains on Wednesday as investors positioned for monthly jobs data on Friday. The numbers will be scoured for clues to when the Federal Reserve will begin to scale back its $85bn-a-month stimulus programme.     

In fixed income markets German Bund futures reversed early losses and were sharply higher on the ECB hints about possible future rate cuts, while yields on riskier Spanish and Italian bonds fell.

However, political tensions in Portugal, after the resignation of two government ministers this week put its hope of exiting its EU/IMF programme in doubt, hung over the region's

bond market.

Portuguese 10-year yields, an indicator of the cost the government would have to pay to borrow, rose back to 7.53pc although it did not appear to have the momentum to

break back above Wednesday's high of 8.2pc.


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