European stocks rose today in light of European Central Bank President Mario Draghi’s comments regarding increased stimulus.
Friday, November 7, 2014
Draghi affirmed that the ECB would use whatever means necessary to boost the struggling eurozone economy. “The central bank is clearly strengthening commitment to do more if needed relative to market expectations,” Valentin Marinov, head of European Group of 10 currency strategy at Citigroup Inc. in London, told Bloomberg. “That’s euro negative.”
The Stoxx Europe 600 added 0.7%, Germany’s DAX 30 rose 1.3%, France’s CAC 40 increased 1.2% and the UK’s FTSE 100 gained 0.27%. The euro dropped against all but two of its 16 primary competitors and reached a two-year low against the US dollar.
ECB to expand balance sheet
The Wall Street Journal reported that European policy makers are united in their endeavor to significantly grow the ECB’s balance sheet to a level not seen since early 2012. Economists estimate the expansion would have to be close to a trillion euros to attain that goal.
European indices started Thursday lower but gained considerably after Draghi’s official statement, which the ECB’s governing council must approve. Draghi indicated the balance sheet expansion would last two years.
For investors, the statements showed the ECB was prepared to take action against low inflation and support renewed economic growth. Some analysts suggested the ECB may be closer to the broad purchasing of government bonds – a measure known as quantitative easing or QE.
“Today is the first day that the ECB has included a balance sheet target in its statement. It signals Draghi the politician has won another key fight in the battle to launch sovereign QE,” Luke Bartholomew, a fund manager at Aberdeen Asset Management, told The Wall Street Journal.
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