European markets gained Thursday morning on the possibility of stimulus from the European Central Bank.
Thursday, January 8, 2015
The upward move followed Wednesday’s gain, in no small part due to an annual dip in consumer prices. In this case, evidence of deflation helped the market because it pressured the ECB to step up its stimulus measures.
“Confirmation of outright deflation in the eurozone was taken as good news … as investors judged that it made QE this month all the more certain,” Ian Williams, an economist and strategist at brokerage Peel Hunt, told MarketWatch in a note. “Now Mr. Draghi and his (in some cases) less enthusiastic ECB colleagues will need to deliver.”
The Stoxx Europe 600 gained 1.3% as all sectors advanced. Germanys DAX 30 added 1.1%, while France’s CAC 40 and the UK’s FTSE 100 both grew 1.3%.
Possibility of stimulus boosts confidence
The prospects of additional ECB stimulus have weakened the euro but strengthened the stock market, according to The Wall Street Journal. The government bond-buying program known as quantitative easing drove the euro to its lowest level since 2006, while European stocks built on Wednesday’s gains.
Greek markets did not adhere to the larger trend, however. Analysts have persistent fears that the upcoming snap elections may lead Greece to default on its debt or even exit the eurozone. Over the past month, Athens’ benchmark index is down 25%.
With that said, quantitative easing it on the horizon and could be the answer to the eurozone’s recent economic woes. Low inflation and sluggish growth have proved too resilient for other stimulus means, and the ECB is on its last legs.
“Amid mounting evidence that the measures taken by the ECB to date have not yielded the desired results, quantitative easing, in the shape of outright buying of government bonds by the ECB, is looking more and more like a done deal,” strategists at BNP Paribas told The Wall Street Journal.
Some experts believe the ECB’s January 22 meeting could be the date it announces its intentions.
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