European Central Bank Extends QE til December 2017

By Xinyang December 8, 2016


News Event

From Trading Economics: The European Central Bank held its benchmark refinancing rate at 0 percent for the seventh straight time on December 8th, as widely expected, and extended its programme of quantitative easing until December 2017. Policymakers decided to continue its purchases under the asset purchase programme at the current monthly pace of €80 billion until the end of March 2017. From April 2017, the net asset purchases are intended to continue at a monthly pace of €60 billion until the end of December 2017, or beyond, if necessary. Both the deposit rate and the lending rate were left unchanged at -0.4 percent and 0.25 percent, respectively. Interest Rate in Euro Area averaged 2.17 percent from 1998 until 2016, reaching an all time high of 4.75 percent in October of 2000 and a record low of 0.00 percent in March of 2016.

Market Opening Wrap

In European Equity Markets stocks rose on Thursday, extending earlier gains as banks climbed further following the European Central Bank's unexpected decision to cut its monthly asset purchases.  The ECB said it would cut its asset purchases to 60 billion euros per month from next April from the current 80 billion euros, adding asset buys will run until the end of 2017, or longer if necessary. The pan-European STOXX 600 index was up 0.6 percent to its highest since early September. Italy's FTSE MIB index rose 1.3 percent to its highest since late May, supported by a 4.6 percent rise in its banking index to a five-month high. Monte dei Paschi rose for a third straight day and was last up 6.8 percent.

In Currency Markets the euro fell over 1 percent on Thursday after the European Central Bank extended asset purchases until the end of next year and President Mario Draghi said cuts to the size of the programme should not be viewed as tapering.  The euro had strengthened ahead of Thursday's decision. It peaked at $1.0875 in the first minute after the statement before turning lower. It last traded at $1.0617, down 1.26 percent on the day. Against the yen, the greenback increased 0.38 percent to 114.18. Sterling slid 0.28 percent to $1.2591, not far from Tuesday's nine-week highs of 1.2776. The dollar index against a basket of six major currencies gained 0.90 percent to 101.13.

In Commodities Markets  oil rebounded from the week's lows and hovered above $50 a barrel on Thursday as market watchers focused on an upcoming weekend meeting between OPEC and non-OPEC producers that may result in an agreement to cut crude output further. Brent was up 0.66 percent, to $53.35 a barrel. U.S. light, sweet crude was up 0.8 percent, at $50.17 a barrel. Gold nudged lower after climbing in Europe and commodities including iron ore and coking coal struggled to hold on to gains made after Chinese demand drove steel prices to their highest since April 2014. Copper closed 0.1 percent lower at $5,782 a tonne, reversing earlier gains, while aluminium bucked the trend and was bid up 1 percent to $1,723.50 a tonne.

In US Equity Markets  stocks on Thursday touched fresh record levels intraday after the European Central Bank held its key rates steady but said it would taper its asset-purchase plan in April, while leaving the door open for an extension of its economic stimulus program "if necessary." The Dow Jones Industrial average was 0.1 percent, at 19,568.21. The S&P 500 was up 0.06 percent, at 2,242.78 and the Nasdaq Composite was up 0.4 percent, at 5,415.61, easing from a high of 5,416.54. Lululemon rose 16.2 percent after the yoga and leisure apparel retailer reported a better-than-expected quarterly profit. Costco rose 4.2 percent after the warehouse club retailer reported a quarterly profit that beat analysts' expectations.

In Bond Markets U.S. Treasury yields rose on Thursday in line with their European counterparts after the European Central Bank said it would trim its monthly pace of bond purchases to 60 billion euros from 80 billion euros, starting in April. The benchmark 10-year Treasury note's yield was up 5 basis points at 2.396 percent, retreating from a session high of 2.427 percent. The German 10-year Bund yield was up 8 basis points at 0.429 percent.

Source: Institute of Trading and Portfolio Management

By Xinyang December 8, 2016

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