Traders work in front of the DAX board at the Frankfurt Stock Exchange. The index grew 0.73% to a record high of 10,242.35 points yesterday.
AFP/London
Europe’s main stock markets closed higher yesterday, the start of a pivotal week for the region with the ECB forecast to announce fresh stimulus measures and Greece holding a snap election.
In London the benchmark FTSE 100 index climbed 0.54% to end the day at 6,585.53 points compared with Friday’s close.
Frankfurt’s DAX 30 grew 0.73% to a record high close of 10,242.35 points, while the CAC 40 in Paris gained 0.35% to 4,394.93 points.
“European stock markets are starting the new trading week on a positive note seeing some early follow-through buying after last Friday’s steep gains,” said Markus Huber, senior analyst at broker Peregrine & Black.
“Increasing optimism that the ECB will finally announce QE (stimulus) during their monthly meeting later this week is continuing to drive investors into stocks. In addition a weak euro combined with low oil prices is stirring hopes that a sustained recovery for the eurozone isn’t far off.”
Stock indices had rallied Friday on fresh signals that the European Central Bank will launch a bond-buying stimulus programme this week, news that has weighed heavily on the euro.
The chronically low level of inflation across the single currency bloc has fuelled concern the region could slip into deflation – a sustained and widespread drop in prices. Britain, which is not part of the eurozone, also risks falling into deflation later this year.
While falling prices may sound good for consumers, deflation can trigger a vicious spiral in which businesses and households delay purchases, throttling demand and causing companies to lay off workers.
Such concerns have fuelled speculation that the ECB could launch a programme of sovereign bond purchases known as quantitative easing or QE when it holds its first policy meeting of the year on Thursday.
The expectation weighed on borrowing costs, with 10-year Spanish and Italian bond rates striking record low levels yesterday. The Spanish note dropped to 1.470% before rebounding to close at 1.513%, and Italy closed at 1.664% after hitting a low of 1.619%.
The euro recovered following its 11-year low against the dollar on Friday. At 1700 GMT yesterday, the European single currency bought $1.1630 compared with $1.1566 late in New York on Friday.
At one point ahead of the weekend, the single currency tumbled to $1.1460 – the first time it had traded under $1.15 since November 2003.
“The main event this week is the ECB’s policy meeting and press conference on Thursday,” noted Neil MacKinnon, economist at financial group VTB Capital.
“The markets expect the ECB to announce a QE programme of anything up to €600bn ($696bn) consisting of purchases of eurozone government bonds.”
Stocks rallied on a weaker euro, which boosted shares in companies reliant on exports. The single currency is feeling the force of expected ECB stimulus as it reduces the prospect of higher eurozone interest rates any time soon.
Also on the radar this week is a snap general election in Greece on Sunday.
The looming election has raised concerns that a victory by the leftist Syriza party will force eurozone member Greece to renegotiate its bailout with international lenders.
The euro meanwhile has been hit also by a soaring Swiss franc. The franc has jumped by about 20% against the euro since the Swiss central bank stunned markets Thursday with its bombshell decision to abandon the minimum rate of 1.20 francs against the European common currency.
The Swiss National Bank had since September 2011 been defending the exchange rate in a bid to protect the country’s vital export industry, including by buying massive quantities of foreign currencies.
Switzerland’s main stocks index closed up 3.21% yesterday after plunging 14% last week following the central bank’s shock decision to scrap its three-year bid to hold down the value of the franc.
Wall Street was closed yesterday due to a US national holiday.
