European Stocks Rally to Two-Month High as ECB Boosts Stimulus

Sep 04, 2014 12:02 pm ET

Sept. 4 (Bloomberg) -- The European Central Bank’s surprise decision to cut interest rates as well as start buying securitized debt brought investors out from the sidelines, sending the region’s benchmark index to a two-month high.

The Stoxx Europe 600 Index rose 1.1 percent to 348.89 at the close, the highest level since July 3. The gauge, which opened lower, erased losses before the ECB reduced all three of its main interest rates by 10 basis points. It extended the gains, led by bank shares, after the central bank’s President Mario Draghi announced the decision to buy a “broad portfolio of simple and transparent securities.”

“The lowering of all three interest rates was a very nice surprise, as was the news that the ECB is really trying to do something in the ABS market,” said Michael Woischneck, an equities fund manager at Lampe Asset Management in Dusseldorf, Germany. “And they are announcing all this on the same day, which means that the ECB really wants to move ahead of the curve. It’s definitely what the market was waiting for, and then a bit more.”

In committing cash to the market for asset-backed securities, Draghi sought to rekindle an asset class that can funnel loans to the real economy and ease funding conditions for banks. The Stoxx 600 has rebounded 7.2 percent from a four-month low on Aug. 8 on expectations of an ECB policy boost.

Surging Volume

The volume of shares changing hands in Stoxx 600-listed companies was 51 percent greater than the 30-day average for this time of the day, according to data compiled by Bloomberg. This measure had lagged the mean in the morning.

National benchmark indexes rallied in 16 of the 18 markets in western Europe with those in France, Italy, Spain, Portugal and Greece jumping more than 1.5 percent. Germany’s DAX advanced 1 percent.

Stimulus measures have helped the Stoxx 600 rally about 62 percent from a low in September 2011. Since taking over in November of that year, Draghi has pledged to hold borrowing costs low and said in July 2012 he would do “whatever it takes” to save the euro.

In the U.K., the Bank of England maintained its benchmark rate at 0.5 percent, the level it held since March 2009, as predicted by economists surveyed by Bloomberg News. The FTSE 100 climbed less than 0.1 percent, its fifth day without a loss.

Bank Shares

A gauge of lenders listed on the Stoxx 600 posted its biggest two-day increase since January. UniCredit SpA rose 5.1 percent to 6.40 euros, while Intesa Sanpaolo SpA gained 5.6 percent to 2.46 euros. Banco Santander SA advanced 2.6 percent to 7.89 euros, and BNP Paribas SA climbed 2.9 percent to 54.30 euros, its highest price since April.

Standard Life Plc rallied 8.1 percent to 417.2 pence, its largest gain since August 2012, after selling its Canadian business to Manulife Financial Corp. for about C$4 billion ($3.7 billion). The U.K. insurer said it will return 1.75 billion pounds ($2.88 billion) to shareholders when the transaction is completed.

Bilfinger SE slumped 9.5 percent to 53.85 euros for the biggest drop since Aug. 5. Adjusted net income from continuing operations will be at least 160 million euros ($210 million) for 2014, the German builder said in a statement late yesterday. That compares with an Aug. 4 projection for profit of 205 million euros to 220 million euros.

Henderson Group Plc fell 1 percent to 228.8 pence after Morgan Stanley cut its rating on the stock to equal weight, similar to a neutral recommendation, from the equivalent of buy. The stock dropped 15 percent since a record on April 2 through yesterday.