Investors take profits as ECB boosts firepower

Updated Jun 05 2020

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Euro rises as European Central Bank adds another 600 billion euros to its already gigantic stimulus war chest. — AFP/File
Euro rises as European Central Bank adds another 600 billion euros to its already gigantic stimulus war chest. — AFP/File

LONDON: A rally in global stock markets petered out Thursday but resolute action from the European Central Bank to fight the coronavirus fallout put a floor under losses from investors cashing in on recent gains.

The euro rose and southern European bond yields slipped after the ECB added another 600 billion euros ($675bn) to its already gigantic stimulus war chest, and said it would continue its pandemic bond-buying for another year at least.

But if boosted ECB support seems huge, so does the expected eurozone downturn it is designed to alleviate, with ECB chief Christine Lagarde forecasting a 2020 contraction of 8.7 per cent in the area’s gross domestic product (GDP). “Whatever it takes,” said Holger Schmieding at Berenberg. “Like finance ministers, central banks across the advanced world continue to do their utmost to contain the mega recession.”

‘More attractive’

The ECB’s move came a day after Germany said it would pump 130bn euros into a stimulus package to kick-start the region’s biggest economy.

At first, European stock markets were unimpressed, with investors locking into profits “after enjoying a very bullish session yesterday”, as David Madden, analyst at CMC Markets UK, put it. But then, some cautious buying brought markets off their worst levels.

“European equities and US futures rose from session lows after the ECB boosted its Pandemic bond buying programme and extended it through June 2021,” said Edward Moya at OANDA.

Published in Dawn, June 5th, 2020