Draghi to expand stimulus; stocks rise, euro falls

January 22, 2015 09:16 AM

European stocks rose, extending a seven-year high, and U.S. equity-index futures advanced as European Central Bank President Mario Draghi said he will expand stimulus. Bonds gained from Italy to Spain while the euro weakened.

The Stoxx Europe 600 Index advanced 1% at 9:14 a.m. in New York after climbing as much as 1.3%. Standard & Poor’s 500 Index future gained 0.6%. The yield on 10-year Italian bonds fell seven basis points to 1.62% and Spain’s rate dropped to a record. The euro declined 1.1% to $1.1482. Gold advanced 0.2% to 1,295.58 an ounce and oil in New York was little changed.

Draghi said the ECB will buy 60 billion ($69 billion) month of assets through September 2016. The Executive Board earlier proposed buying 50 billion ($58 billion) of bonds a month through December 2016, according to two euro-area central-bank officials. A U.S. report showed more Americans than forecast filed applications for unemployment benefits.

“Markets were expecting big and this sounds like a pretty big program, so that’s good news,” Karyn Cavanaugh, the New York-based senior market strategist at Voya Investment Management LLC, said by phone. Voya oversees $215 billion. “We were all expecting it and finally we got what we were looking for.”

The ECB pledged to buy government bonds as part of an asset-purchase program worth around 1.1 trillion. In addition to monthly purchases, the ECB also reduced the cost of its long-term loans to banks.


Fighting Deflation

“This was slightly above expectations of what the ECB would do to expand its balance sheet, which has sent a shot of adrenaline to risk markets,” Chad Morganlander, a money manager at St. Louis-based Stifel, Nicolaus & Co., which oversees about $160 billion, said in a phone interview. “The market readjustment in this trading session is a hollow cheer that at least central bankers are trying what they can to fight this deflationary force.”

Three shares advanced for every two that declined in the Stoxx 600, with trading volumes 22% greater than the 30- day average, according to data compiled by Bloomberg. Energy and commodity producers led gains.

Logitech International SA climbed 9.5% after increasing its annual profit outlook and reporting third-quarter sales that beat analysts’ estimates.

S&P 500 futures expiring in March rose, indicating the index will climb for a fourth day. Cisco Systems Inc. slipped 1.2% in early New York trading after Oracle Corp. announced a cheaper competing hardware product.


Verizon Earnings

Verizon Communications Inc. slid 1.5% after reporting earnings that missed analysts’ estimates. Among the 67 S&P 500 companies that have reported earnings this season, 79% beat profit estimates, while 51% exceeded sales projections, data compiled by Bloomberg show.

Jobless claims decreased by 10,000 to 307,000 in the week ended Jan. 17, from a revised 317,000 in the prior period, a Labor Department report showed. The median forecast of 52 economists surveyed by Bloomberg called for a decline to 300,000.

The MSCI Emerging Markets Index advanced for a third day, rising 0.6%, heading for the highest close since Dec. 5.

The Shanghai Composite Index rose 0.6% and the Hang Seng China Enterprises Index of mainland companies listed in Hong Kong advanced 0.2%.


Adding Money

The People’s Bank of China conducted its first reverse- repurchase operation in a year, adding money to the financial system a day after saying it rolled over a ¥269.5 billion ($43.4 billion) lending facility to banks. China will avoid a hard landing, Premier Li said Wednesday in a speech at the World Economic Forum in Davos.

Russia’s Micex Index added 3.1%, extending a 3% advance on Wednesday, as oil gained for a second day. The ruble strengthened 1%.

Brent crude, the benchmark for more than half the world’s oil, jumped 1.7% to $49.87.

Gold declined for a second day, dropping 0.1% to $1,291.11 an ounce.

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