ECB says PEPP program will end in March
European stocks advanced Thursday, pricing in a positive reaction to a Federal Reserve interest-rate decision on Wednesday and gains after the Bank of England hiked interest rates for the first time since the pandemic. The European Central Bank left rates unchanged, but confirmed its emergency bond buying plan will end in March.
The Stoxx Europe 600 SXXP, 1.26% rose 1.6% to 478.55, setting the stage for a second day of gains after a five-session losing run. U.S. stock futures ES00, 0.11% pointed to more gains on Thursday.
The Fed on Wednesday, after European markets had closed, doubled the pace at which it is reducing its bond purchases and projected more interest-rate hikes in 2022 and 2023 than anticipated.
“With no clear evidence as to why this happened, we can only assume that it may have been a position-covering move as the market as a whole was long dollars and short equities heading into the decision. Perhaps some participants may have been expecting to lock profits after a potentially more hawkish Fed,” said Charalambos Pissouros, head of research at JFD Group.
The Bank of England took markets by surprise with a 15 basis-point hike in its benchmark rate to 0.25%. “The labor market is tight and has continued to tighten, and there are some signs of greater persistence in domestic cost and price pressures,” the central bank said.
The U.K. FTSE 100 UKX, 1.04% rose 1%, while the pound GBPUSD, 0.55% and gilt yields TMBMKGB-10Y, 0.782% climbed as investors had expected the interest rate rise would be delayed until February, after the U.K. recommended workers stay at home in response to the spread of the omicron variant of coronavirus. COVID cases rose on Wednesday to the highest level since the pandemic began, and France has moved to restrict travelers from the U.K.
The European Central Bank left key interest rates unchanged, reiterating that its Pandemic Emergency Purchase Programme will end in March as planned. It sees those purchases slowing in the first quarter of 2022, but said its regular bond purchases, via the Asset Purchasing Program, will double to 40 billion euros amid that emergency phase-out.
A press conference with ECB President Christine Lagarde is ahead.
Bank stocks were leading the way higher, with HSBC HSBC, 3.21% HSBA, 3.23% surging 4% and Banco Santander SAN, 4.25% up 5%.
Technology SX8P, 2.07%, travel SXTP, 1.14% and energy SXEP, 2.28% also rose.
The German DAX DAX, 1.16%, the French CAC 40 PX1, 1.09% rose at least 1.5% each.
Electricite de France EDF, -13.90% shares stumbled 12%, after the French utility giant said it would temporarily shut down two nuclear reactors due to faults in pipes.