Global equities and bonds rally as ECB unleashes new stimulus

Oil prices fall after OPEC+ talks, ECB rate cut

LONDON, Sept 12, (RTRS): European stocks climbed on Thursday to their highest in seven weeks and bond yields tumbled as the European Central Bank’s new stimulus measures and mutual concessions by the United States and China in their trade dispute buoyed riskier bets.

The Euro STOXX 600 gained 0.7% after the ECB approved new stimulus measures to hit its highest level since July 25. Bourses in Paris and Frankfurt gained 0.8%, rebounding strongly after giving up early gains before the ECB statement.

The ECB cut rates deeper into negative territory and restarted its programme of bond buying, known as quantitative easing, with a formulation that suggests purchases could go on for years.

The policy package added wind to investors’ sails, already boosted by signs of detente in the US-China trade war.

In mutual concessions, US President Donald Trump had moved to delay an increase in tariffs on Chinese goods by two weeks, while China exempted some US drugs and other goods from tariffs.

MSCI’s world equity index, which tracks shares in 47 countries, was up 0.1% after rising to its highest since Aug 1. It was on course for its seventh straight day of gains, its best winning streak since early June.

Wall Street futures gauges gained between 0.3%-0.7%.

The ECB cut its deposit rate to a record low of -0.5%, promised that rates would stay low for longer and said it would restart bond purchases at a rate of 20 billion euros a month from Nov 1.

With other central banks easing monetary policy, Germany at risk of recession and euro zone governments doing little to prop up the bloc, ECB policymakers were forced to deploy most of their remaining tools. Eurozone bond yields fell and the euro weakened 0.7% as a result.

After the ECB’s move, Germany’s 10-year bond yield fell 8 basis points to -0.64% after the ECB’s statement, while 30-year debt fell almost 20 bps at one point.

Eurozone government bonds had earlier risen from record lows reached a week ago on doubts that the ECB would resume asset purchases.

The euro, after initially rising, dropped sharply to as low as $1.0955 as investors digested news of the rate cut and relaunch of QE. The single currency had hit a 28-month low earlier this month of $1.0926, and has shed 3.5% since June.

The dollar rose against a basket of currencies and was last up 0.2% at 98.568

The optimism over trade had earlier emboldened risk-hungry investors, with the Chinese yuan gaining 0.4% against the dollar, touching a threeweek high of 7.0855.

US

US stocks gained in morning trading on Thursday after the United States delayed scheduled tariff hikes on billions worth of Chinese imports, and the European Central Bank launched a stimulus drive to boost the ailing euro zone economy.

Trade-sensitive technology stocks provided the biggest boost among the 11 major S&P 500 sectors. The benchmark index rose to within 0.3% of a record high hit in July.

At 11:18 am ET the Dow Jones Industrial Average was up 48.88 points, or 0.18%, at 27,185.92, the S&P 500 was up 8.61 points, or 0.29%, at 3,009.54 and the Nasdaq Composite was up 36.44 points, or 0.45%, at 8,206.12.

Energy stocks fell 0.78% and were the biggest drag on the S&P as oil prices fell after a meeting of the OPEC+ alliance yielded no decision on deepening supply cuts.

Among industrial stocks, Deere & Co and Caterpillar Inc dropped after Wells Fargo downgraded their shares to “market perform”.

Baker Hughes fell 1.59% after General Electric Co began divesting its stake in the oilfield services provider, aiming to raise $2.7 billion.

Activision Blizzard Inc rose 2.39% after two brokerages raised their price targets on the stock.

UK

London’s blue-chip index ended in the black on Thursday as trade concerns were soothed by a two-week US tariff reprieve on Chinese imports and Morrisons jumped on upbeat profit and forecast.

The FTSE 100 index was in and out of negative territory through the session but ended 0.1% higher, boosted by a 1% rise in tobacco giant BAT after layoff plans that offset losses in oil majors BP and Shell.

The mid-cap index, meanwhile, dipped 0.1% after scaling its highest level in nearly a year.

The main index earlier touched a more than one-month high, helped by gains in global miners such as BHP and Anglo American after US President Donald Trump agreed to delay increasing tariffs on $250 billion worth of Chinese imports.

Britain’s No. 4 grocer Morrisons climbed 4.7% after beating expectations for first half profit and forecasting improved sales in its second half.

Heavyweight blue-chip oil stocks fell after Saudi Arabia’s new energy minister said deeper supply cuts would not be discussed before a meeting of the Organization of the Petroleum Exporting Countries planned for early December.

Crude prices also came under further pressure after the European Central Bank cut its deposit rate to a record low. The ECB promised an indefinite supply of fresh asset purchases and cut interest rates deeper into negative territory.

“This feels like more of a symbolic gesture than effective stimulus that’s highly dependent on looser fiscal policy to succeed,” Oanda analyst Craig Erlam said.

Europe

European stocks edged higher in choppy trading on Thursday, with banks underwhelmed by the European Central Bank’s stimulus measures while Washington’s move to delay tariffs on Chinese goods boosted automakers and technology firms.

The pan-European stocks index gained as much as 0.8% after the ECB cut its deposit rate to a record low of -0.5% from -0.4% and said it will restart bond purchases of 20 billion euros a month from November.

That initially sent bond yields tumbling, the euro down and euro zone stocks into positive territory.

Gains in the STOXXE index wore off as the session progressed, however, with euro zone banks swinging on the news that the ECB was easing the terms of its cheap loan scheme to banks and introducing a tiered deposit rate.

Eurozone banks – one of the main beneficiaries of an investor pivot into value stocks in recent days – closed 0.24% higher, while broader European banks finished unchanged.

Italian banks, which have big holdings of sovereign bonds, were an outperformer with a 1.2% gain, owing to a recent surge in Italian government bond prices.

Optimism about a de-escalation in the economically damaging China-US trade war and expectations of monetary stimulus from the ECB have led major European indices to track higher this week.

Energy stocks were a big drag, falling 1.3%, as oil prices fell on oversupply concerns.

Among individual stocks, Anheuser-Busch InBev was the biggest boost to the STOXX 600 after the company said it would again explore an initial public offering in Hong Kong for its Asia Pacific unit two months after cancelling the planned listing.

Conversely, transportation firm Alstom fell 4.9% after French conglomerate Bouygues halved its stake in the company.

Asia

Asian shares were mixed Thursday after China and the US moved to ease trade tensions.

Investors drew encouragement from China’s decision to exempt some US products from a recent round of tariffs. Tokyo, Shanghai and Sydney advanced while Hong Kong slipped.

Stocks notched broad gains on Wall Street Wednesday, with technology, health care and communication services stocks powering much of the rally.

Tokyo’s Nikkei 225 index gained 0.8% to 21,759.61 while the Shanghai Composite index also added 0.8% to 3,031.24. The S&P ASX 200 climbed rose 0.3%, to 6,654.90. Hong Kong’s Hang Seng index slipped 0.1% to 27,124.39. Shares also fell in Singapore and Jakarta but rose in Taiwan.

Oil

Oil prices fell on Thursday after a meeting of the OPEC+ alliance yielded no decision on deepening supply cuts but focused instead on bringing Nigerian and Iraqi output down to their agreed quotas.

Oil came under further pressure after the European Central Bank cut its deposit rate to a record low -0.5% from -0.4% and said it will restart bond purchases of 20 billion euros a month from November to prop up euro zone growth.

Brent crude futures were down $1.49 cents at $59.32 a barrel by 1350 GMT US West Texas Intermediate futures fell $1.27 cents to $54.48. Both were heading for a third session of losses.

Saudi Arabia’s new energy minister, Prince Abdulaziz bin Salman, said deeper cuts would not be decided before a meeting of the Organization of the Petroleum Exporting Countries planned for December.

A statement from OPEC and its allies, a grouping known as OPEC+, said oil stocks in industrial countries remained above the five-year average. Oman’s energy minister said “the outlook is not very good for 2020.”

Saudi’s Prince Abdulaziz said his country would keep cutting by more than it pledged in the pact that has throttled supply from OPEC and its partners by 1.2 million barrels per day.

Currencies

Sterling slipped a quarter of a percent on Thursday against the euro but firmed against the dollar, as the single currency enjoyed a broad rebound in the wake of the European Central Bank’s new stimulus announcement.

The ECB cut its deposit rate by 10 basis points and announced a bond purchase programme of 20 billion euros a month, starting from November, but the move failed to live up to some dovish market expectations, leading to some volatile euro moves.

The single currency had initially fallen after the ECB statement and touched a 2-1/2 month low against the pound at 88.86 pence.

It then rebounded across the board as ECB President Mario Draghi hinted at the limits of monetary policy and called on governments to expand budget spending.