Thursday, January 22, 2015

Stocks Rally, Euro Falls After ECB Move

Stocks Rally, Euro Falls After ECB Move

Central Bank Announces Bigger-Than-Expected Program of Asset Purchases

ECB President Mario Draghi is widely expected to announce a bond-buying program Thursday following what may be a historic monetary policy meeting. ENLARGE
ECB President Mario Draghi is widely expected to announce a bond-buying program Thursday following what may be a historic monetary policy meeting. Illustration: Agence France-Presse/Getty Images
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Stocks on both sides of the Atlantic rallied and the euro fell after the European Central Bankannounced a bigger-than-expected program of asset purchases as it battles a flagging economic recovery and falling prices.
ECB President Mario Draghi said the central bank would buy €60 billion ($69 billion) of public and private sector debt every month until September 2016 in an effort to boost inflation back to its target of close to 2%. Although the introduction of a large-scale bond-buying program was widely expected, analysts and investors said the size was toward the upper end of expectations.
Earlier, the ECB kept interest rates on hold at record lows, as expected.
Equity markets in Europe gained. The Stoxx Europe 600 added more than 1% to a fresh seven-year high before dropping back slightly to trade 0.7% higher.
U.S. stock futures indicated a 0.5% opening gain for the S&P 500. Changes in futures aren’t necessarily reflected in moves after the opening bell.

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The euro fluctuated after the announcement, before heading lower, trading down 0.4% against the dollar at $1.1559.
The size of the proposed program “is above our and the market’s expectations,” said Andrew Bosomworth, head of portfolio management in Germany at PIMCO.
Bonds in the eurozone also rallied. German government bonds, which had weakened ahead of the announcement, chalked up small gains, pushing 10-year yields down to 0.49%.
Treasury bond yields also fell slightly to 1.92%.

Market Talk

Oil Gives Up Gains
Oil gives back gains from earlier in the day after the European Central Bank announces its quantitative easing program. Brent is trading just 0.4% higher while WTI is down 0.1%—both had been up as much as 2.5% earlier in the day. The euro fell after the ECB’s news, making dollar-denominated commodities such as oil more expensive for holders of the common currency. (georgi.kantchev@wsj.com; @georgikantchev)

German Government Bond Yields Fall
10-year German government bond yields fell by three basis points to 0.49% immediately after Mario Draghi announced the ECB would buy €60 billion in high-grade bonds a month up until the end of September 2016 at least. The rally was short-lived, however, with yields rebounding to 0.52% minutes later, according to Tradeweb, just below their level before Draghi began speaking. The current yield is 0.51%. (Christopher.whittall@wsj.com)

U.S. Stock Futures Rise
As expected, the ECB refilling the punch bowl has risk assets rising in the wake of Draghi disclosing details of the central bank’s QE effort. U.S. stock futures have jumped, with Dow industrial futures going from up about 80 at the bottom of the hour to 135 presently. Meanwhile, the euro has slid toward $1.1550 from above $1.16 and oil has pulled back as the dollar strengths, shedding a good bit of its earlier gains. Treasurys have weakened further, with the 10-year yield now at 1.93%. (kevin.kingsbury@wsj.com)
Market Talk is a stream of real-time news and market analysis that’s available on Dow Jones Newswires
Write to Tommy Stubbington at tommy.stubbington@wsj.com
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There are 11 comments.
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Robert Eisenhauer
Those who commit "QE" should "hang from trees, cursed."

Under in-your-face fraud and armed robbery of QE, stock markets go UP.  Says all I need to know about stock markets, right there.
Johnnie Welker
Hopefully not too late for them...it took way too long to act in this manner. However, that's not their biggest issue which is fiscal: way too many old people to take care of
Mark Linklater
A big mistake! The underlying structural problems of the European community are far different then those in the USA. In this case one size fits all does not work in reality. The other danger is that that QE will allow some European governments to put badly needed structural reforms on the back burner. Also the real winner in this game will not be the average European but the banks, stock markets and the wealthy who have the free income to invest. Wages are already so low in many European states. In Italy a good income for an educated professional in many cases is between 2100 and 2500 euros clear. Try to raise a family on this in Rome. Also, the other issue, like here, is what type of collateral will the ECB allow to be pledged. Here, they pledged and the Fed took in a lot of garbage as collateral. No one want to ever discuss the fact that if we have another crisis how will the Fed dispose of this garbage? Simple the US tax payer will be left holding the bag of toxic goodies.  
Johnnie Welker
@Mark Linklater I agree that the consequences will be different than the US. That said, what else is at his disposal to revive this economy? Technically, you would want to have fiscal support, but there is no way is getting what he wants from 18 different countries with different needs
Paul Charbonnet
In the US as QE progressed, treasury rates declined. Now with the EU  contemplating QE, interest rates are rising.? Why?
Johnnie Welker
@Paul Charbonnet
The US is a special case. In normal conditions, QE should increase your rate, weaken your currency, and increase inflation because you are putting more money in the economy.

All of that did not happen with the US. Mainly because the US markets are far more global. QE in the US is not dependent of US conditions, but also the rest of the world. Demand for US treasuries actually went up during that time (there are plenty of reasons for that)
Jim Gayton
QE=Taking money from tax paying middle class and giving it to the 1%.
mike nicosia
Does anyone else have trouble with the login for Barron's and the WSJ? I am logged out automatically each day and after logging into the WSJ I select the icon at the top of the page for Barron's only to find that I need to log in again!
Michael Winnick
@mike nicosia On a random basis I keep getting asked to log in to read some article. Some days I have no problems, other days I have to log in. But I normally get logged in every time I start up and can see the front p[age, and even read an article. But then on some days some random article requires me to log in. It usually only happens once in any given day.
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