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 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 at their current levels well past the end of the asset purchase program.

The Euro Stoxx 50 index of eurozone stocks gained 0.7%, while the S&P 500 rose 0.3% soon after the opening bell. The euro was down 0.6% at $1.1745, while yields on German 10-year bonds fell to 0.435%, according to Tradeweb, from 0.464% just ahead of the news. Yields fall as prices rise.

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Corporate earnings drove steep swings in individual U.S. stocks in one of the busiest days for third-quarter results. Twitter jumped 13% 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 1.2% after the auto maker said third-quarter profit rose amid strong truck sales, a lower tax rate and cost cuts.

The Dow Jones Industrial Average added 102 points, or 0.4%, to 23425, while the Nasdaq Composite rose less than 0.1%.

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

The decision "is something that everyone was expecting," says Philippe Waechter, chief economist at Natixis Asset Management.

Still, many took the ECB's move and ECB President Mario Draghi's tone during his news conference as a confirmation that eurozone monetary policy would remain ultraloose for some time to come.

"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.

The euro has surged against the dollar 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.

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 10:01 ET (14:01 GMT)