Stocks Climb After ECB Unveils Plans to Slow Bond Buying

By Riva Gold Features Dow Jones Newswires

ECB lays out QE plans

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-- Euro, German bond yields edge lower

-- U.S. stocks poised to open higher

Stocks gained momentum while the euro and bond yields edged lower Thursday after European Central Bank officials unveiled plans to scale down but extend their quantitative easing program.

The ECB said it would pare back its monthly bond purchases to EUR30 billion a month from EUR60 billion and keep buying until the end of September next year. The ECB also reiterated that interest rates would remain on hold well past the end of its asset purchase program.

The Euro Stoxx 50 index of eurozone stocks gained 0.6%. The euro was down 0.3% at $1.1775, while yields on German 10-year bonds fell to 0.441%, according to Tradeweb, from 0.464% just ahead of the news. Yields fall as prices rise.

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In the U.S., the Dow Jones Industrial Average added 106 points, or 0.5%, to 23436 shortly after the opening bell. The S&P 500 gained 0.3%, and the Nasdaq Composite rose less than 0.1%.

The ECB's announcement was closely in line with what investors and economists had forecast, underscoring the muted market reaction.

"The announcement was so much in line with what we expected that it was almost disappointing," said Paul Hatfield, global chief investment officer at Alcentra, part of BNY Mellon Investment Management.

Although the level of monthly bond purchases is significantly reduced, the fact that QE is extended through September is taken by many investors as a relatively dovish sign.

"The longer the program goes on, the further into the future any prospect of a rate hike is, keeping upward pressure on the euro at bay," said James Athey, investment manager at Aberdeen Standard Investments.

Many investors believe the eurozone economy is strong enough to handle the gradual shift in policy, underscoring the calm in the region's riskier assets in recent months. Expectations for a policy change come as the currency bloc's economy is on course for its strongest year since 2007, with measures of consumer confidence in the bloc reaching decade-highs.

"Growth is absolutely on fire," said Michael Collins, portfolio manager at PGIM Fixed Income. "The need for central bank support is over, at least in the near term," he said.

While inflation has remained well below the bank's target, purchasing managers' indexes released this week showed the currency area posted its fastest employment growth in a decade, raising the prospect that rising wages may lift still-weak inflation.

And while ultra-accommodative monetary policy has been a boon for eurozone equities in recent years, many believe the stock market can cope with a gradual rise in government bond yields and less central bank support, particularly if interest rates don't move for some time.

"We are not talking about stressed balance sheets in Europe, and companies can still access the bond market and raise debt at a very cheap level," said Hugh Cuthbert, portfolio manager at SVM Asset Management.

The bigger concern is on the currency, which could be sensitive to any commentary perceived as hawkish from ECB President Margio Draghi, Mr. Cuthbert said.

The euro is up over 12% against the dollar so far this year, a move that some companies have warned has cut into their earnings as they translate revenue from abroad. Long positions on the euro have recently declined slightly, but remain at elevated levels, based on recent data from the CFTC.

Meanwhile, in Europe Thursday, Sweden's Riksbank and Norway's Norges Bank both left their monetary policy unchanged.

Corporate earnings drove steep swings in individual stocks in one of the busiest days for third-quarter results.

Shares of Twitter jumped 11% after the company said it overstated its number of users for the past three years, but also reported a narrower loss and raised its earnings forecast for the fourth quarter.

Ford Motor gained 1.7% after the auto maker said third-quarter profit rose 63% amid strong truck sales, a lower tax rate and cost cuts.

Earlier, Asian markets were little changed after a downbeat session on Wall Street, where a series of disappointing earnings figures sent the Dow industrials down 112 points Wednesday.

Tom Fairless contributed to this article.

Write to Riva Gold at riva.gold@wsj.com

(END) Dow Jones Newswires

October 26, 2017 09:55 ET (13:55 GMT)