London: Europe’s main stock markets closed higher yesterday, the start of a pivotal week for the region with the ECB forecast to announce fresh stimulus measures and Greece holding a snap election.
In London, the benchmark FTSE 100 index climbed 0.54 percent to end the day at 6,585.53 points compared with Friday’s close. Frankfurt’s DAX 30 grew 0.73 percent to a record high close of 10.242,35 points, while the CAC 40 in Paris gained 0.35 percent to 4,394.93 points.
“European stock markets are starting the new trading week on a positive note seeing some early follow-through buying after last Friday’s steep gains,” said Markus Huber, senior analyst at broker Peregrine & Black.
“Increasing optimism that the ECB will finally announce QE (stimulus) during their monthly meeting later this week is continuing to drive investors into stocks. In addition a weak euro combined with low oil prices is stirring hopes that a sustained recovery for the eurozone isn’t far off.” Stock indices had rallied on Friday on fresh signals that the European Central Bank will launch a bond-buying stimulus programme this week, news that has weighed heavily on the euro. The chronically low level of inflation across the single currency bloc has fuelled concern the region could slip into deflation — a sustained and widespread drop in prices. Britain, which is not part of the eurozone, also risks falling into deflation later this year.
While falling prices may sound good for consumers, deflation can trigger a vicious spiral in which businesses and households delay purchases, throttling demand and causing companies to lay off workers. Such concerns have fuelled speculation that the ECB could launch a programme of sovereign bond purchases known as quantitative easing or QE when it holds its first policy meeting of the year on Thursday.
The expectation weighed on borrowing costs, with 10-year Spanish and Italian bond rates striking record low levels yesterday. The Spanish note dropped to 1.470 percent before rebounding to close at 1.513 percent, and Italy closed at 1.664 percent after hitting a low of 1.619 percent.
The euro recovered following its 11-year low against the dollar on Friday. At 1700 GMT Monday, the European single currency bought $1.1630 compared with $1.1566 late in New York on Friday.
“The main event this week is the ECB’s policy meeting and press conference on Thursday,” noted Neil MacKinnon, economist at financial group VTB Capital. “The markets expect the ECB to announce a QE programme of anything up to 600bn euros ($696bn) consisting of purchases of eurozone government bonds.”
Switzerland’s main stocks index closed up 3.21 percent yesterday after plunging 14 percent last week following the central bank’s shock decision to scrap its three-year bid to hold down the value of the franc. Wall Street was closed yesterday due to a US national holiday. AFP
