German Stocks Climb as ECB’s Draghi Outlines Bond Plan
German stocks climbed as European Central Bank President Mario Draghi said policy makers agreed to an unlimited bond-purchase program to regain control of interest rates in the euro region and stem the debt crisis.
Drugmakers advanced, led by Bayer AG, which rose 4.2 percent. Merck KGaA gained 3.4 percent after it agreed to buy the global rights to a cancer drug developed by Symphogen A/S. Deutsche Bank AG climbed 7.1 percent.
The DAX added 2.9 percent to 7,167.33 at the close in Frankfurt, its biggest gain in a month. The gauge has rallied 20 percent from this year’s low on June 5 as Draghi said he will preserve the euro and amid speculation the Federal Reserve will announce a third round of bond purchases. The broader HDAX Index rose 2.8 percent today.
“Draghi took a huge gamble and managed not to disappoint on the most important point,” said Witold Bahrke, a senior strategist at PFA Pension A/S in Copenhagen, where he helps oversee $55 billion. “He committed the central bank to backing up the euro area, while doing it in a way that doesn’t make the ECB too vulnerable to speculation.”
The ECB will target government bonds with maturities of one to three years, including longer-dated debt that has a residual maturity of that length, Draghi said. Purchases will be fully sterilized, meaning that the overall impact on the money supply will be neutral, and the ECB will not have seniority.
“Governments must stand ready to activate the EFSF/ESM in the bond market when exceptional financial-market circumstances and risks to financial stability exist -- with strict and effective conditionality,” Draghi said. The ECB reserves the right to terminate bond purchases if governments don’t fulfil their part of the bargain, he said.
The ECB needs to be in a position to ensure the transmission of its rates in all euro-area countries, Draghi said after the central bank held its benchmark rate at a record low of 0.75 percent.
“We will have a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability,” Draghi said at a press conference in Frankfurt today.
German factory orders increased in July as domestic demand for investment goods such as machines helped offset a decline in sales to fellow euro-area countries.
Orders, adjusted for seasonal swings and inflation, gained 0.5 percent from June, when they fell a revised 1.6 percent, the Economy Ministry in Berlin said today. Economists forecast a 0.3 percent increase, according to the median of 38 estimates in a Bloomberg News survey.
Companies in the U.S. added 201,000 workers in August, according to figures from Roseland, New Jersey-based ADP Employer Services. The median estimate in a Bloomberg survey called for an advance of 140,000.
A separate report showed service industries in the U.S. expanded in August at a faster pace than forecast. The Institute for Supply Management’s non-manufacturing index climbed to a three-month high of 53.7 from 52.6 in July, the Tempe, Arizona- based group said today. Readings above 50 signal expansion, and economists projected 52.5 for August, according to the median estimate in a Bloomberg survey.
Bayer, Germany’s largest drugmaker, advanced 4.2 percent to 65.53 euros.
Merck (MRK) rose 3.4 percent to 95 euros after agreeing to pay as much as 495 million euros ($625 million) for global rights to a cancer drug developed by Symphogen, a Danish biotechnology company.
Symphogen will receive 20 million euros now, and as much as 225 million euros if the drug passes certain regulatory and clinical steps, the Darmstadt, Germany-based company said in a statement today. Merck will also pay the Copenhagen, Denmark based company as much as 250 million euros on reaching certain levels of sales.
Deutsche Bank, the biggest German lender, rose 7.1 percent to 29.79 euros. Commerzbank AG, the second largest, gained 5.3 percent to 1.30 euros.
Lanxess AG (LXS) advanced 3.3 percent to 61.99 euros as the specialty chemicals maker, which was spun off from Bayer almost eight years ago, is poised to join the DAX (DAX) index on Sept. 24., according to a statement from Deutsche Boerse AG.
HeidelbergCement AG (HEI), the third biggest European cement maker, rose 4.8 percent to 42.17 euros. A gauge of construction stocks was among the best performers of the 19 industry groups on the Stoxx Europe 600 Index. (SXXP)
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