European Shares, Euro Gain as Investors Seek More Clues From ECB

By Christopher Whittall and Kenan Machado Features Dow Jones Newswires

Stocks in Europe and the euro moved higher ahead of a European Central Bank press conference that could provide clues on when the ECB will scale back its huge bond-purchase program.

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The Stoxx Europe 600 added 0.4%, led by gains in German shares after eurozone economic growth estimates were raised on Thursday, while the euro gained 0.5% against the dollar at $1.1977.

Futures pointed to a roughly flat opening for the Dow Jones Industrial Average after Wall Street closed slightly higher on Wednesday. Most Asian markets were little changed.

On Wednesday, U.S. stocks rose slightly after President Donald Trump backed a deal with congressional Democrats to attach hurricane relief money to a three-month extension of both government funding and the debt limit. That also prompted some modest moves in U.S. government bonds and the U.S. dollar.

In Europe, investors are now turning their attention to the ECB in the hope of getting more details on when the central bank could scale back its bond purchases. Central bank stimulus programs have helped boost stocks and bonds in recent years.

Stocks and currency markets barely budged after the ECB said in a statement Thursday that it was keeping interest rates on hold and left its guidance over its bond purchases unchanged. Focus now shifts to an ECB press conference scheduled to begin at 13.30 London time.

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The ECB has said it would make a decision on its bond-purchase program in the fall. Most analysts aren't expecting an announcement Thursday, but are hoping for further clues on the central bank's thinking, including the release of new economic forecasts. Some highlight that the recent gains in the euro, along with stubbornly low inflation, could complicate any plans to scale back its extraordinary stimulus measures despite the recent strength in the economy.

"Inflation is just moving sideways in Europe," said Jean Boivin, head of economic and markets research of the BlackRock Investment Institute.

"It's going to become very tricky for the ECB to tell a convincing story of why there needs to be a significant change in policy at this stage," he added.

One particular headache for the ECB is the strong gains in the euro over the past several months, which can damp inflation by pushing down the price of imports. The single currency is now up nearly 14% so far this year against the dollar.

"The biggest focus will be on how much pushback we get on the strength of the euro," said Seamus Mac Gorain, a portfolio manager at J.P. Morgan Asset Management.

Mr. Mac Gorain said there is a limit to how far the ECB can talk down the currency given the strong growth in the eurozone and the fact that the euro doesn't look overly expensive based on traditional currency valuation models. Still, the euro's rapid appreciation in recent months will mean the ECB won't "want it to go too much higher from here," he added.

Elsewhere in currency markets, the WSJ dollar index, which measures the dollar against a basket of 16 other currencies, slipped 0.4%.

Data released Thursday showed the eurozone economy grew more quickly over the 12 months through June than previously estimated, further underlining the resilience of the economic recovery. European stocks rose following the announcement, led by a 1% gain in Germany's DAX index.

Gains were also led by autos and technology stocks, with the Stoxx Europe 600 subindexes for both those sectors rising by more than 1%.

In bond markets, the yield on the 10-year German government bond was slightly higher at 0.350%, according to Tradeweb, while the 10-year Treasury yield was slightly lower Thursday at 2.090%. Yields rise as prices fall.

The biggest moves in the Asia-Pacific region came in Korea, where the Kospi rose 1.1%. as attention -- for now -- shifted away from North Korea. The rebound came after five consecutive trading sessions in the red, to mark its longest losing streak since April. The Kospi's rise was driven by gains from heavyweight Samsung Electronics amid a favorable outlook on demand for its organic light-emitting diode, or OLED, screens.

Elsewhere in the region, Hong Kong's Hang Seng Index slipped 0.3% Thursday, Japan's Nikkei Stock Average rose 0.2% and the Shanghai Composite Index fell 0.6%.

On Thursday, the Chinese central bank fixed the currency's trading midpoint to the dollar at a fresh 16-month high. Some Chinese companies that operate abroad will likely benefit from a stronger yuan against the U.S. dollar, said Alexander Lee, chief investment officer at Hong Kong-based Nimbus Capital Group.

In commodity markets, Brent crude oil rose 0.6% to $54.50 a barrel. Gold rose 0.4% to $1,344.20 an ounce.

Write to Christopher Whittall at christopher.whittall@wsj.com and Kenan Machado at kenan.machado@wsj.com

(END) Dow Jones Newswires

September 07, 2017 08:31 ET (12:31 GMT)