European Stocks Gain as ECB Agrees on Bond-Purchase Plan
European stocks rallied the most in a month after European Central Bank President Mario Draghi said policy makers agreed to an unlimited bond-purchase program as they try to regain control of interest rates in the euro area.
UniCredit SpA (UCG) and Societe Generale SA (GLE) led gains in banks, climbing more than 7 percent. Lonmin Plc (LMI), the platinum producer whose main mine has been shut since Aug. 10 because of a strike that led to 44 deaths, soared 7.3 percent after agreeing to open wage talks with labor unions. Whitbread Plc (WTB) jumped 5.3 percent after sales climbed.
The Stoxx Europe 600 Index surged 2.3 percent to 271.67 at the close, its biggest increase since Aug. 3. The gauge has rallied 16 percent from this year’s low on June 4 as Draghi pledged to do everything possible to preserve the euro.
“We are having a relief rally,” said Alan Higgins, chief investment officer at Coutts & Co. in London. “There is relief that what Draghi has said is just in line with the rumors. The new plan is essentially to help countries finance themselves at the front-end.”
National benchmark indexes climbed in all 18 western-European markets, and all 19 industry groups in the Stoxx 600 advanced. Germany’s DAX rallied 2.9 percent and the U.K.’s FTSE 100 gained 2.1 percent. France’s CAC 40 jumped 3.1 percent.
The ECB program “will enable us to address severe distortions in government bond markets which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro,” Draghi said at a press conference in Frankfurt. “Under appropriate conditions, we will have a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability.”
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, he said.
“European financial markets are standing tall as the central bank finally responds with a bond-buying plan like we haven’t seen before,” Ishaq Siddiqi, a market strategist at ETX Capital in London, wrote in e-mailed comments. “Operating within its mandate, the ECB will help reduce borrowing costs of indebted euro-zone members by buying their bonds.”
The ECB left its benchmark interest rate at a record low of 0.75 percent today, as predicted by 28 of 58 economists in a Bloomberg survey. The remainder had forecast a quarter-point cut. The Bank of England kept its rate at 0.5 percent and held its bond-purchase target at 375 billion pounds ($597 billion).
In the U.S., companies added more workers than forecast in August, a private report based on payrolls showed. The 201,000 increase in employment, the biggest gain in five months, followed July’s revised 173,000 increase, Roseland, New Jersey-based ADP Employer Services said. The median forecast of 41 economists surveyed by Bloomberg called for an advance of 140,000.
The Institute for Supply Management’s index of U.S. non-manufacturing businesses, which covers about 90 percent of the economy, rose to 53.7 in August from 52.6 in July, the Tempe, Arizona-based group said.
A gauge of banks had the biggest gain among 19 industry groups in the Stoxx 600, rising 4.4 percent. UniCredit, Italy’s largest lender, advanced 8.1 percent to 3.51 euros and France’s Societe Generale rallied 7.8 percent to 22.93 euros. Banco Espirito Santo SA surged 8.3 percent to 61.3 euro cents in Lisbon.
Lonmin surged 7.3 percent to 568 pence. The company agreed today with three labor union to reopen a wage deal agreed in December to raise pay as much as 10 percent, depending on employees’ job categories, in each of two years.
Whitbread jumped 5.3 percent to 2,210 pence after saying like-for-like sales rose 4.3 percent in the 24-week period to Aug. 16, while total sales increased 14.3 percent. Chief Executive Officer Andy Harrison said that the company should meet the targets of its growth program even though trading remains variable from month to month.
Dixons Retail Plc (DXNS) increased 3.9 percent to 19.85 pence after fiscal first quarter like-for-like sales climbed 5 percent, beating estimates projecting a 4 percent gain. The consumer electronics retailer said same-store sales in the U.K. and Ireland, which account for almost half of the group’s business, increased 7 percent.
William Morrison Supermarkets Plc (MRW) gained 4.3 percent to 292.7 pence, its biggest rally since July 2009, after reporting a first-half underlying pretax profit of 445 million pounds, exceeding the average estimate of 431.5 million pounds.
Salzgitter AG (SZG), Germany’s second-biggest steelmaker, rose 7.1 percent to 30.23 euros. Antofagasta Plc (ANTO), the Chilean copper producer, advanced 5.6 percent to 1,157 pence. A gauge of basic-resources companies posted the third-biggest gain of the 19 industry groups in the Stoxx 600.
Luxottica Group SpA (LUX), owner of the Oakley and Ray-Ban sunglasses brands, tumbled 4.8 percent to 28 euros as the company’s founder, Leonardo Del Vecchio, sold 18 million common shares at 27 euros apiece.
Nokia Oyj (NOK1V), the mobile-phone maker that lost more than 95 percent of market value since 2007, dropped 2.9 percent to 1.93 euros after the stock was cut to sell from hold at Deutsche Bank AG. The shares sank 13 percent yesterday after the company unveiled two smartphones using Microsoft Corp.’s new Windows Phone software.
The volume of shares changing hands on the Stoxx 600 was 72 percent higher than the average of the last 30 days, data compiled by Bloomberg show.
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