Europe close: Stocks gain on bets the ECB will introduce full-blown QE
Stocks in the euro-area advanced on bets the European Central Bank (ECB) will unleash full-blown quantitative easing (QE) to revive the weak economy.
French President François Hollande on Monday said the monetary authority would announce plans to buy Eurozone sovereign debt when it meets later in the week.
“On Thursday, the ECB will take the decision to buy sovereign debt, which will provide significant liquidity to the European economy and create a movement that is favourable to growth,” Hollande said in a speech to business leaders at the Élysée Palace, according to The Wall Street Journal.
However, since his speech the leader has backtracked, saying that he was referring to the "hypothesis" of QE, not that it was certain.
His remarks follow reports ECB President Mario Draghi met with German Chancellor Angela Merkel last week to discuss plans for QE. The ECB has been under mounting pressure to take further action as Eurostat confirmed that the Eurozone entered deflation in December.
Denmark cuts deposit rate after SNB move
Denmark has cut its deposit rate in a bid to preserve the country’s currency peg after the Swiss National Bank (SNB) last week decided to scrape a three-year cap on the franc.
The Danish central bank lowered its deposit rate to -0.2% from -0.05%, while the lending rate was also cut to 0.05% from 0.2%.
"The currency could come under more upward pressure once the European Central Bank quantitative easing is implemented and perhaps amid safe-haven flows as an alternative to Switzerland," said Jessica Hinds, European economist at Capital Economics.
Italian banks, Greek elections
Italy’s government is said to be planning a reform that would force cooperative banks to become joint-stock companies.
Shares in Italian cooperative banks gained after Il Sole 24 Ore wrote on Saturday that the new measures could be included in a government decree as soon as Tuesday. Banco Popolare, Banca Popolare di Milano Scarl and Banca Popolare dell’Emilia Romagna were among the big risers.
In Greece, the nation is preparing for elections on Sunday, with left-wing party Syriza continuing to lead in recent polls.
According to a poll published on Sunday in the Greek daily Kathimerini that is a compendium of 12 surveys run in tandem with the University of Macedonia, the Syriza party maintained the lead with 34.7% support. This was 4.5 percentage points ahead of the conservative New Democracy led by Prime Minister Antonis Samaras that received 30.2%.
“Political uncertainty in Greece before and after the election on 25 January will raise liquidity and funding risks for banks, Fitch Ratings said. “But potential liquidity strains should be manageable since the banks are better prepared to withstand deposit outflows than when elections were last held in 2012, as long as access to Eurosystem facilities is maintained.”
In the US, the markets were closed for Martin Luther King Jr. Day.
In Asia, Chinese shares retreated after regulators took steps to rein in speculative lending. Beijing cracked down on credit products that have been blamed for fuelling excessive market speculation over the past three months.
Energy stocks slide
A gauge of energy stocks fell, including Total SA and BP as oil prices edged lower. The fall in oil prices has led Middle Eastern companies to put their initial public offerings on hold, according to Ernst&Young. Brent crude dropped 2% to $49.15 per barrel in afternoon trade, according to the ICE.
Telefonica SA gained following reports Hutchison Whampoa is considering a purchase of the Spanish company’s wireless unit O2 in the UK.
Schindler Holdings rallied after raising its profit estimate for 2014.
The euro rose 0.54% to $1.1630.