Draghi says eurozone recovery is robust and broad-based
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European stock markets erased earlier gains and turned firmly lower on Thursday, yanked lower by a euro rally after the European Central Bank said eurozone growth was surprisingly strong and offered only limited pushback against the Trump administration's embrace of dollar weakness.
What are markets doing?
The Stoxx Europe 600 index fell 0.6% to end at 398.60, its lowest close since Jan. 17.
Germany's DAX 30 index slid 0.9% to 13,298.36, while France's CAC 40 index moved 0.3% lower to 5,481.21.
The U.K.'s FTSE 100 index dropped 0.4% to 7,615.84 (http://www.marketwatch.com/story/ftse-100-rebounds-from-4-week-low-as-diageo-sky-drive-higher-2018-01-25).
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The euro jumped to an intraday high of $1.2537 from $1.2410 late Wednesday in New York, marking the first time the shared currency has traded above $1.25 since late 2014. It exchanged hands at $1.2485 at the time of the European market close.
The pound rose to $1.4266, compared with $1.4238 on Wednesday.
What's driving the markets?
The euro shot higher after the ECB called the eurozone's economic growth "robust" and "broad-based" and said inflation has started to move closer to the bank's target of below, but close to 2%.
ECB President Mario Draghi did spell out concerns over the strengthening euro, saying the recent volatility represents a "source of uncertainty" and a risk to the region's growth outlook. He reiterated, however, that the bank doesn't target an exchange rate for competitive purposes, seen as a rebuke to U.S. Treasury Secretary Steven Mnuchin who in recent days have stated a weak dollar is good for U.S. trade (http://www.marketwatch.com/story/dollar-plunges-to-3-year-low-after-mnuchin-cheers-weaker-greenback-2018-01-24).
See:Here's why Trump's weak-dollar policy is Mario Draghi's problem (http://www.marketwatch.com/story/its-trumps-dollar-policy-but-draghis-problem-2018-01-25)
Read:ECB recap: Draghi offers warning on euro, but shared currency continues surge (http://www.marketwatch.com/story/ecb-live-how-will-draghi-handle-a-surging-euro-2018-01-25)
Draghi's comments were interpreted as an acknowledgment there's little the ECB can do to arrest the euro's rise in the near term. A stronger euro can hurt exports and weigh on inflation, potentially hurting the recovery. That's also why stocks headed lower after the euro jumped above $1.25.
Read:Things are going GREAT in the eurozone--so why isn't the ECB raising rates? (http://www.marketwatch.com/story/5-key-question-for-the-ecb-as-hawkish-noises-start-to-emerge-2018-01-23)
The euro has moved significantly higher recently and is now up more than 4% against the dollar in 2018, adding to last year's 14% advance.
The ECB made no changes to its interest rates, keeping the deposit rate at a negative 0.4% and the refinancing rate at 0%. The bank also kept its forward guidance in place, saying rates will "remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases."
Regarding its quantitative easing program, the central bank reiterated the EUR30 billion-a-month bond-buying program is intended to run until the end of September or "beyond if necessary."
What are strategist saying?
"Despite the European Central Bank not changing its outlook or interest rates, the euro soared during today's lunchtime press conference. The market had expected Mario Draghi to come out and temper expectations by talking down the recent euro appreciation, as he has done in the past. However, he stated that the economy was vastly improving and the recovery was now 'robust and broad-based', which is far more positive language than he used last year," said Hamish Muress, currency analyst at OFX, in a note.
"Draghi offered no clear hint whether the ECB would suddenly stop its asset purchases, extend them, or phase them out gradually. By admitting that this is part of the debate at the ECB, he opened the door for a sudden end of asset purchases in eight months from now," said Holger Schmieding, chief economist at Berenberg, in a note.
What's new in economic data?
German business sentiment jumped in January (http://www.marketwatch.com/story/german-business-sentiment-jumps-in-january-2018-01-25), with the Ifo business climate index rising to 117.6 points from 117.2 in December. The reading beat economists' expectations of a slight decline to 117.0 and tied with November's print for an all-time high.
What stocks are in focus?
Shares of Nordea Bank AB (NDA.SK) lost 4.2% after the Scandinavian bank posted a 43% drop in fourth-quarter profit (http://www.marketwatch.com/story/nordea-earnings-fall-short-on-sluggish-activity-2018-01-25).
Aryzta AG (ARYN.EB) sank 21% after the Swiss baker company issued a profit warning, partly blaming "Brexit-related pressures" on its U.K. business.
Clariant AG (CLN.EB) slid 8.1% after Saudi chemicals company SABIC's disclosed that it has purchased of a roughly 25% stake in the Swiss chemicals company.
(END) Dow Jones Newswires
January 25, 2018 12:42 ET (17:42 GMT)