By Carla Mozee, MarketWatch
Stocks across Europe surged by the most in more than two months as the euro got walloped following the European Central Bank’s policy decision to wrap up crisis-era bond purchases by the end of 2018 and keep interest rates low for at least another year.
The ECB’s plan’s to bring its easy-money programs to an end, on the back of an improving economic picture in Europe, were widely expected. However, the euro may have gotten slammed by the degree of caution expressed by European policy makers in outlining the initiative to return to normal.
How markets are performing
The Stoxx Europe 600 Index (STOXX:XX:SXXP) rose by 1.2% to 393.04, marking its best day, on a percentage basis, since April 5 and hitting its highest close since May 22, according to WSJ Market Data Group. On Wednesday, the pan-European benchmark rose 0.2%.
Germany’s DAX 30 index (XEX:DX:DAX) also flipped higher, to up 1.7% to 13,107.10, also finishing around a three week high, while France’s CAC 40 index (PAR:FR:PX1) climbing up 1.4% to close at 5,528.46.
Spain’s IBEX 35 (1058:XX:IBEX) advanced 0.6% at 9,957.70, and Italy’s FTSE MIB index (BORSA:IT:I945) picked up 1.2% to 22,486.32.
The U.K.’s FTSE 100 (FTSE:UK:UKX) rose 0.8% to 7,765.79.
The euro (XTUP:EURUSD) bought $1.1688, pulling back from a jump to $1.1852 right after the ECB statement was released. The shared currency traded at $1.1791 late Wednesday in New York.
What’s driving markets
European bourses stepped higher after the European Central Bank said it would continue its program of buying 30 billion euros a month of bonds through September, as planned. The purchase amount will then be reduced in October to 15 billion euros a month and run through the end of December. The purchases will end in December.
The ECB also said it plans to keep reinvesting principal payments from maturing securities purchased under the asset-purchase program “for an extended period after the end of the net asset purchases” and as long as policy makers feel its necessary to provide an ample degree of accommodation.
On interest rates, the ECB said rates will remain at their present all-time lows “at least through the summer of 2019.” The Stoxx Europe 600 Banks Index (STOXX:XX:SX7P) rose 0.3%, somewhat lagging larger gains for other sectors.
ECB President Mario Draghi, at a press conference in Riga, Latvia, said the central bank now sees 2018 eurozone growth at 2.1%, down from a previous forecast of 2.4%.
Mining stocks pared an earlier decline, with some finishing the session in the green, shaking off downbeat data out of China, the world’s largest buyer of copper and a major buyer of other industrial and precious metals. Business activity in China slowed in May, and readings on industrial output, retail sales and fixed-asset investment from the National Bureau of Statistics fell short of expectations.
Investors also took notice of a decision by the People’s Bank of China to stand pat on interest rates, breaking a pattern of raising rates in the footsteps of the U.S. central bank.
The Stoxx Europe 600 Basic Materials Index (STOXX:XX:SXPP) reversed course to end up 1.2%. Copper producer Antofagasta PLC (LON:UK:ANTO) ended the session down 1.5%, off its lows of the day, while shares of Centamin PLC (LON:UK:CEY) edged 0.2% lower, also cutting a steeper drop and Glencore PLC (LON:UK:GLEN) (OTC:GLCNF) pivoted in to the green, closing 0.1% higher.
As expected, the U.S. Federal Reserve on Wednesday lifted its benchmark federal-funds rate by a quarter-percentage point—to a range of 1.75% to 2%. It also signaled it will raise rates a total of four times in 2018, compared with a previous outlook for three hikes. Wednesday’s rate increase was the second of the year.
What strategists are saying
“The shock announcement that the ECB will keep rates unchanged at least until mid-2019 has caused the euro to spiral lower. Whilst the information itself shouldn’t shock markets, the decisive comments today isn’t the usual style we see Mr. Draghi epitomize at monthly meetings,” said Alex Lydall, head of corporate FX at Foenix Partners, in a note.
“Although negative connotations are attached to the new rate information, Draghi did also note that asset purchases will extend to December, but only at a rate of 15 billion euros a month. This news will fill traders with confidence that the eurozone is stepping out of its troubled shadow, albeit at snail’s pace,” he added.
Aveva Group PLC (LON:UK:AVV) rallied 12%. The industrial-software company said it was maintaining its dividend even as fiscal 2018 pro forma pretax profit fell 34%, stemming in part from reverse acquisition by France’s Schneider Electric SE (PAR:FR:SU)
Unilever PLC (LON:UK:ULVR) (NYS:UL) fell 2.8%. The consumer-goods maker’s CFO Graeme Pitkethly warned sales growth in the first half of 2018 will be below the full-year target of 3% to 5% , but maintained sales guidance for the year. Pitkethly also said it is “extremely unlikely” Unilever will maintain a primary listing in London after its move to consolidate in Rotterdam.
Shares of European payment processor Adyen NV (AMS:NL:ADYEN) fell 3.7% to €438, briefly reaching a high of €484 on the Euronext Amsterdam exchange Wednesday doubled during that session. The shares had priced at €240 each.
Rolls-Royce Holdings PLC shares jumped 6.5% after the British aircraft-engine maker said it would cut 4,600 jobs in its latest round of job reductions.
Retail sales for the U.K. in May surpassed consensus forecasts, as a stretch of good weather and Royal Wedding celebrations gave a fillip to spending in food and household goods stores.
Sales were up 1.3% on the month, the Office for National Statistics said. A print of 0.5% was expected. They were up 3.9% year-over-year, compared with 2.4% expected in a FactSet consensus estimate.