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Research Market strategy
by Swissquote Analysts
Morning News

ECB Signals Sharp Policy U-Turn With Fresh Stimulus Plans

Topic of the day

The European Central Bank signaled a major policy reversal on Thursday, flagging plans for fresh measures to stimulate the eurozone's faltering economy less than three months after phasing out a 2.6 trillion-euro ($2.9 trillion) bond-buying program, making it the first major central bank to ease policy in response to a global slowdown. The ECB said it would hold interest rates at their current levels at least through the end of this year--months longer than previously signaled--and unveiled a fresh batch of cheap long-term loans for banks. The series of policy moves represent a more aggressive response to the economic slowdown than investors had expected. ECB President Mario Draghi is likely to provide further details at a news conference starting at 08:30 ET, where he is also expected to announce cuts to the ECB's quarterly forecasts for eurozone growth and inflation. The ECB is the first major developed country central bank to provide new stimulus at a time when the global economy is softening. The Federal Reserve has paused its march toward higher interest rates in recent weeks but hasn't signaled any new easing steps. ECB officials are seeking to shore up an economy that has been rattled by shocks ranging from a slowdown in China to mass protests in France and bottlenecks in Germany's crucial auto industry. They are threading a careful path between providing sufficient support for the region's softening economy while avoiding any appearance of panic, which could ricochet through financial markets.

Swiss stocks

The SMI slumped 0.8 percent to 9,325 points Thursday, following neighbouring markets and Wall Street down after the European Central Bank lowered Eurozone growth prospects amid existing growth worries, and raising fears that this year’s rally was only a blip in a bear market. Bank stocks came under pressure, with the Eurozone’s economic problems firing worries of new challenges for the sector, including fears of a surge in bad loan volumes. Credit Suisse slid 2.2 percent and UBS sank 2.8 percent. Roche’s 3.2 percent or CHF 8.85 slump was caused mainly by its CHF 8.70 dividend payment the previous day. Thus Roche was actually very stable, as were the other heavyweights Novartis and Nestle, which rose 0.4 percent and 1.3 percent respectively. Lafargeholcim fell 1.4 percent despite posting predominantly positive 2018 financials, with increased turnover and a return to profitability due to an austerity programme. Analysts emphasised the profit margin was higher than expected.

International markets

Europe

The Stoxx Europe 600 Index finished down 1.60 points, or 0.43%, to 373.88, the largest one-day point and percentage decline since Feb. 8. The index now is down for two consecutive trading days and is down 1.76 points, or 0.47%, over the last two trading days. The FTSE 100 Index ended down 0.53%, or 38.45 points, to 7157.55, the largest one-day point and percentage decline since Feb. 27. The index snapped a four-trading-day winning streak and now is off 9.14% from its record close of 7877.45 hit May 22, 2018. The CAC-40 Index finished down 20.89 points, or 0.39%, to 5267.92, the largest one-day point and percentage decline since Feb. 8 and now is down for two consecutive trading days. The DAX finished down 69.83 points, or 0.60%, to 11517.80, the largest one-day point and percentage decline since Feb. 14 and was down for two consecutive trading days.

United States

U.S. stocks slid intraday after the European Central Bank unveiled plans to deploy additional stimulus, raising fresh worries about the health of the global economy. Lingering questions about trade relations and the world economy have put a damper on the stock market's 2019 rebound. The ECB's messaging brought those worries to the forefront, showing investors that central bankers have become increasingly concerned about the slowdown across the eurozone. The central bank said it would leave interest rates unchanged at least through the end of the year, months longer than investors had previously expected. It also added that it would launch a fresh batch of ultracheap long-term bank loans. While those moves showed the ECB was willing to take aggressive steps to try to stimulate growth, it also highlighted the extent to which the global economic outlook has dimmed over the past year. Losses were broad, dragging nine of the S&P 500's 11 sectors lower and putting the broad index on track for its worst weekly decline since December.

Asia

Asian markets tumbled on worries that the U.S. and China may not be as close to a trade deal as President Donald Trump had suggested. Stocks in Shanghai, Hong Kong, Tokyo retreated sharply, with the weak China data adding to the gloom. On Thursday, the New York Times reported that the U.S. and China have come to a broad agreement that would result in the removal of some tariffs in both countries. This involves China buying more American goods and opening some of its markets further to foreign companies, it said.

Bonds

Government bonds on both sides of the Atlantic strengthened intraday after the European Central Bank said it would hold interest rates at current levels at least through the end of this year. In recent trading, the yield on the benchmark 10-year U.S. Treasury note was 2.648%, according to Tradeweb, compared with 2.692% Wednesday. The yield on the 10-year German bund was 0.072% after earlier dropping to 0.070% - its lowest level since October 2016 - compared with 0.128% on Wednesday. Yields fall when bond prices rise.

Analysis

CS rises the Dialog target to 31 (29,50) EUR – Outperform
IR rises the Deutsche Post target to 29 (26) EUR – Hold
Societe Generale lowersa Rio Tinto to Sell (Hold)


Produced by MBI Martin Brückner Infosource GmbH & Co. KG on behalf of Swissquote. All news is acquired with journalistic accuracy. No liability is assumed for delays or errors.

 
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