Euro craters, stocks jump as ECB holds off on hike in rate

Oil steadies ahead of OPEC meet; gold hits one-month high

NEW YORK, June 14, (Agencies): European stocks jumped more than 1 percent on Thursday, while the euro cratered against the dollar, after the European Central Bank indicated it would not raise interest rates through the summer of 2019.

The bank’s unexpectedly dovish guidance on interest rates overshadowed its statement that it aimed to wrap up its crisis-era stimulus programme, quantitative easing, at the end of this year.

The ECB now plans to reduce monthly asset purchases between October and December to 15 billion euros until the end of 2018 and then conclude the programme, though ECB President Mario Draghi stressed that the governing council stood ready “to adjust all its instruments as appropriate.”

Investors, though, seized on comments indicating that interest rates would stay at record lows at least through the summer of 2019.

Some analysts believe it could be even longer.

“With Draghi’s term of office due to expire at the end of October 2019, we feel the ECB is unlikely to start increasing interest rates until the new ECB president is firmly in place,” said David Zahn, head of European fixed income for Franklin Templeton.

Ten-year government bond yields in Germany, the eurozone benchmark, fell around four basis points to 0.43 percent .

The euro, meanwhile, touched on its steepest one-day drop against the US dollar since June of 2016, while the dollar accelerated to a two-week peak.

The euro was last down 1.37 percent to $1.1628, while the dollar index, which measures the greenback against six top currencies, rose 0.85 percent.

European equities rose sharply after initial losses, with Wall Street creeping into positive territory.

The pan-European FTSEurofirst 300 index rose 1.40 percent, buoyed by big gains in interest rate-sensitive sectors like autos and utilities.

MSCI’s gauge of stocks across the globe shed 0.05 percent, while Wall Street wavered, with two of the three main indexes up after better-than-expected May retail sales data.

The US Commerce Department reported that retail sales rose 0.8 percent last month, the biggest advance since November 2017. Data for April was also revised upward.

The Dow Jones Industrial Average fell 7.94 points, or 0.03 percent, to 25,193.26, the S&P 500 gained 7.6 points, or 0.27 percent, to 2,783.23 and the Nasdaq Composite added 62.69 points, or 0.81 percent, to 7,758.39.

MSCI’s broadest index of Asia-Pacific shares outside Japan closed 1.11 percent lower, while Japan’s Nikkei lost 0.99 percent.

Benchmark 10-year US Treasury notes last rose 8/32 in price to yield 2.9516 percent, from 2.979 percent late on Wednesday.

The 30-year bond last rose 21/32 in price to yield 3.0696 percent, from 3.102 percent Wednesday.

US

US stocks ticked higher on Thursday, after the European Central Bank signaled that any interest rate hike was still far away, even as it moved to end its 2.55 trillion euro stimulus program by the end of the year.

The ECB’s statement came as a relief, especially after the Federal Reserve raised rates for the second time this year on Wednesday and hinted at two more hikes by the end of 2018.

Technology stocks were the biggest gainers, with Facebook and Alphabet leading the pack, while bank shares took a hit and weighed on the benchmark S&P 500.

US retail sales rose more than expected in May to post its biggest advance since November 2017, while another report showed number of Americans on jobless rolls fell to a near 44-1/2-year low.

Meckler said reaction was mixed to the policy announcements, as markets were split between “those that think the economy is very strong and those who are concerned about inflation.”

At 12:55 pm ET, the Dow Jones Industrial Average was down 26.64 points, or 0.11 percent, at 25,174.56, the S&P 500 was up 5.66 points, or 0.20 percent, at 2,781.29 and the Nasdaq Composite was up 56.87 points, or 0.74 percent, at 7,752.57.

UK

Britain’s main stock index rose on Thursday after the European Central Bank signalled interest rates would remain steady through next summer, easing investors’ concerns about tightening monetary policy.

The ECB announced it would end its unprecedented bond purchase scheme by the end of this year, but said it would maintain rates at record lows at least through the summer of 2019.

The FTSE 100 climbed 0.8 percent to a three-week high, having fallen as much as 0.7 percent earlier when a more hawkish rates outlook from the US Federal Reserve weighed on equities.

High dividend-yielding healthcare stocks, which are sensitive to interest rates, boosted the index, while “bond proxy” consumer goods stocks including Imperial Brands and British American Tobacco also gained.

“While yesterday’s Fed hike was very much ‘hawkish’, in our view, the ECB opted to announce the end of its net asset purchases with a dovish flavour,” said Luigi Speranza, head of European market economics at BNP

Paribas.

Europe

European shares jumped on Thursday after the European Central Bank said interest rates would stay at record lows at least through the summer of 2019 as it announced an end to its massive stimulus plan.

Stock benchmarks across Europe enjoyed their best day in 2-1/2 months as they benefited both from a weaker euro and the surprise extension of lower interest rates.

The pan-European STOXX 600 and the eurozone STOXX jumped 1.4 and 1.3 percent, while the exporter-heavy German index gained 1.7 percent as the euro fell to a session low following the ECB’s statement.

Along with France’s CAC 40, they had their strongest gains since April 5.

Edmund Shing, head of equity derivatives at BNP Paribas, said low rates for longer was a boon for equities as it ensured liquidity remained strong.

Interest-rate sensitive sectors such as autos and utilities surged, while the eurozone’s banking stocks, which suffer from low interest rates, fell 0.2 percent, among the only stocks in negative territory.

Germany’s Commerzbank, Spain’s Bankia, and Italy’s Unicredit were the biggest fallers, down 1.2 to 2 percent.

Asia

Asian markets fell Thursday after the Federal Reserve hiked interest rates and signalled a more hawkish tone for future moves, while US President Donald Trump stoked trade war fears by suggesting he will hit China with fresh tariffs.

And Asian markets struggled, with signs of a slowdown in Chinese growth also denting sentiment after data showed factor output, retail sales and investment all missing forecasts.

Hong Kong ended down 0.9 percent. The city’s de facto central bank lifted its own interest rates to keep in line with the Fed. The HKMA and US central bank’s monetary policies are linked owing to their currency peg.

Shanghai lost 0.2 percent, with analysts saying a People’s Bank of China decision not to follow the Fed’s rate rise indicated officials may be changing policy to combat slowing growth.

The central bank usually tracks US hikes by lifting the amount it charges to lend to banks in order to prevent a flood of cash from the mainland into dollar investments.

“China’s new leadership was greeted by a much more challenging environment in 2018,” said Ting Lu, chief China economist at Nomura investment bank, adding Beijing would likely lower rates and pick up spending in coming months to shore up growth.

Tokyo ended one percent lower, Seoul fell 1.8 percent, Sydney dipped 0.1 percent and Singapore was off 1.1 percent.

Key figures Tokyo — Nikkei 225: Down 1.0 percent at 22,738.61 (close)

Hong Kong — Hang Seng: Down 0.9 percent at 30,440.17 (close)

Shanghai — Composite: Down 0.2 percent at 3,044.16 (close)

Oil

Oil prices steadied on Thursday, but still faced pressure from evidence of rising US output and uncertainty over the outlook for supply before a meeting next week of the world’s largest exporters.

Benchmark Brent crude oil was up 10 cents at $76.84 a barrel by 1320 GMT, while US light crude was 45 cents higher at $67.09.

Brent hit a high of $80 a barrel in May but has since drifted lower, indicating investors expect the market to become better supplied in the next few months as US crude production rises and as key Middle East exporters and Russia pump more.

US crude output has risen almost 30 percent in the last two years to a record high of 10.9 million bpd. Russia pumped 11.1 million bpd in the first two weeks of June, above Saudi Arabia, which produced slightly more than 10 million bpd.

Gold

Gold hit its highest in a month on Thursday after the European Central Bank pledged to keep interest rates steady through next summer and investors fretted over weak Chinese data.

The precious metal’s upside, however, was capped by a firmer dollar and a slightly more hawkish Federal Reserve.

Spot gold was up 0.4 percent at $1,304.21 per ounce at 1315 GMT after hitting a high of $1,309.30 an ounce, its best since May 15.

US gold futures for August delivery rose 0.5 percent to $1,308.30 per ounce.

The ECB said on Thursday it would end its unprecedented bond purchase scheme by the close of the year, but signalled that this would not mean rapid policy tightening in the coming months.

“The ECB ... has now delivered an intrinsically hawkish announcement (ie, the end of QE) in a dovish tone,” Luigi Speranza, head of European market economics at BNP Paribas, said in a note.

Higher interest rates are generally regarded as negative for gold, a noninterest bearing asset.

The ECB move sent the euro down while the dollar index extended its gains as US retail sales posted their strongest rise in six months, supporting the view the Federal Reserve would raise short-term interest rates further.

On Wednesday, the Fed lifted key overnight borrowing costs by a quarter percentage point. It also projected two more rate increases by the end of this year, compared to one previously.

A stronger dollar makes dollarpriced gold more expensive for nonUS investors.