'Dove camp is the clear winner' at the ECB as Draghi says QE won't suddenly stop, says Monex analyst
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European stocks leapt Thursday, leading German equities to a record finish, after the European Central Bank extended its asset-purchase program at a reduced amount each month, but shares of big lenders Barclays PLC and Deutsche Bank AG fell after financial results failed to please.
What stock indexes are doing
The Stoxx Europe 600 index popped up 1.1% to end at a one-week high of 391.27, with only the health-care and tech sectors left in the red. On Wednesday, the index fell 0.6% (http://www.marketwatch.com/story/gucci-parent-helps-lift-luxury-stocks-but-european-markets-stay-in-their-rut-2017-10-25), a second consecutive decline.
Thursday's session pushed Germany's DAX 30 index up by 1.4% to 13,133.28. That is a record as it wipes out the previous closing high of 13,043.03 made on Oct. 18, according to FactSet data.
France's CAC 40 tacked on 1.5% for a close at 5,455.40. Italy's FTSE MIB ended up 1.6% at 22,807.42. The U.K.'s FTSE 100 rose 0.5% to 7,486.50 (http://www.marketwatch.com/story/barclays-shares-shoved-lower-as-ftse-100-steadies-ahead-of-ecb-2017-10-26).
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Spain's IBEX 35 ended up 1.9% at 10,347.80, paring its gain in late afternoon trade as Catalan President Carles Puigdemont failed to call a snap election as had been expected (http://www.marketwatch.com/story/spanish-stocks-pare-gains-after-catalan-president-fails-to-call-snap-elections-2017-10-26).
What drove Thursday's session
The ECB said it would reduce its monthly bond purchases by half to EUR30 billion starting in January, and extend the quantitative-easing program to at least September 2018. The reduction was anticipated as the eurozone economy continues to recover, but the bank is still dealing with stubbornly low inflation.
ECB President Mario Draghi said during his news conference the decision reflects an "open-ended" program that won't stop suddenly.
Read:Draghi averts 'taper tantrum'--for now--as ECB begins slow walk to normalization (http://www.marketwatch.com/story/draghi-averts-taper-tantrumfor-nowas-ecb-begins-slow-walk-to-normalization-2017-10-26)
"It turns out the dove camp is the clear winner here in the sense that they got the flexible or open-end of the QE program. That is why the euro is falling and equity markets are reacting so positively," said Manuel Ortiz-Olave, FX market analyst at Monex Europe.
The euro dropped to an intraday low of $1.1669, giving up the $1.18 handle. Stubbornly low inflation and high unemployment are expected to have been factors in the ECB's decision to stick with stimulus efforts.
Read MarketWatch's recap of Draghi's news conference (http://blogs.marketwatch.com/thetell/2017/10/26/live-blog-ecb-to-begin-tapering-its-massive-bond-buying-program-in-january/)
Before the ECB's policy decision was released, the IBEX 35 jumped as much as 2.7% on reports Puigdemont would call early elections. Leaders in Catalonia and in Madrid have been locked in political crisis after Catalan separatists earlier this month held an independence referendum that Spanish constitutional courts deemed illegal.
What strategists are saying
Monex's Ortiz-Olave said Draghi's central bank foresees the possibility of a so-called V-shaped form of inflation stemming from the base effects of oil prices. "If inflation is back on track, the ECB doesn't have any argument for ultralow monetary policy," he said in an interview.
"If the base effects dragging inflation down disappear at some point next year, which is very likely, then we could see a very sharp reassessment of the ECB's monetary policy, as well as at the Federal Reserve," he said.
The ECB's "decision is the first real baby step towards a very gentle exit from the ECB's crisis mode, but it is definitely not a big-bang U-turn," wrote ING's chief economist Carsten Brzeski in a note.
"In fact, the QE recalibration illustrates the ECB wants to start the exit as cautiously as possible, ideally without seeing the euro appreciate or bond yields increase. It is like stealing away from a party through the backyard, hoping no one notices that party hero is on its way out," said Brzeski.
Read: Why Italy faces worst shock in Europe as ECB prepares to taper bond buys (http://www.marketwatch.com/story/why-italy-faces-worst-shock-in-europe-as-ecb-prepares-to-taper-bond-buys-2017-10-24)
Also read:Barclays stock slumps, wiping GBP2 billion off the bank's market cap (http://www.marketwatch.com/story/barclays-stock-slumps-wiping-2-billion-off-the-banks-market-cap-2017-10-26)
Nokia Corp. (NOK)(NOK) shares plunged 17.5%, their deepest decline since June 2012, FactSet data showed. The Finnish telecommunications company said its quarterly net loss widened to EUR183 million. Nokia also warned that the mobile networks market would fall (http://www.marketwatch.com/story/nokia-loss-wider-than-seen-in-weak-networks-market-2017-10-26) more than previously expected this year.
Shares of STMicroelectronics NV (STM) jumped 11.7% for their best session in since Sept. 14, 2011, according to FactSet data. The chip maker posted a better-than-expected rise in third-quarter sales and net profit (http://www.marketwatch.com/story/stmicroelectronics-profit-rise-beats-forecasts-2017-10-26) to $236 million.
Some major banks suffered after releasing financial results that failed to live up to the hopes of investors.
Barclays PLC (BCS) (BCS) slid 7.4%, the steepest fall since June 2016, immediately after the U.K.'s referendum to exit from the European Union back in late June of 2016. The British lender said third-quarter revenue fell 5% (http://www.marketwatch.com/story/barclays-shares-slump-on-investment-bank-weakness-2017-10-26) from a year ago, after its investment bank was hit by low market volatility, which hurt trading revenues.
Deutsche Bank AG (DBK.XE) (DBK.XE) shares fell 0.9%, but finished off session lows. Third-quarter profit at Germany's biggest bank (http://www.marketwatch.com/story/deutsche-bank-shares-fall-even-as-profit-doubles-2017-10-26) more than doubled to EUR649 million, beating analysts' expectations. Despite the higher profit, the results show Germany's biggest bank still has significant ground to cover to convince investors its rebuilding efforts will pay off after years of disappointment and deep cost-cutting.
Lending to eurozone firms increased (http://www.marketwatch.com/story/eurozone-lending-to-companies-picks-up-pace-2017-10-26) at a faster pace of 2.4% in September than in August, data from the European Central Bank showed Thursday.
(END) Dow Jones Newswires
October 26, 2017 12:35 ET (16:35 GMT)