Europe open: Stocks rise ahead of ECB policy announcement
European stocks gained on Thursday as investors looked forward to a widely expected extension to the European Central Bank’s quantitative easing programme.
At 0842 GMT Germany’s DAX rose 0.55% to 11,042.11 points, France's CAC 40 increased 0.23% to 4,705.49 points, Italy's FTSE MIB edged up 0.04% to 18,133.42 points and Spain's IBEX gained 0.54% to 9,010.50 points.
At the same time, oil prices rose as traders continued to mull over OPEC’s production cut and official data on Wednesday showing a drop in weekly US crude inventories. Brent crude climbed 0.09% to $53.04 per barrel and West Texas Intermediate edged up 0.04% to $49.79 per barrel.
Gains in equities were driven by the expectation that the ECB will at 1245 GMT announce an extension to its asset purchase programme amid political uncertainty and inflationary pressures. The consensus forecast is for a six month extension to QE, while all key rates are anticipated to remain unchanged.
“The big question, however, is whether this prolonged purchasing power remains at €80 billion a month, or whether it is cut to €60 billion; an added complication is that the former figure could signal a six month extension, while the latter may take place over a slightly lengthier nine months,” said Connor Campbell, financial analyst at Spreadex.
“The markets may not be happy to see any kind of ‘tapering’, especially if it isn’t compensated for by a longer than forecast expansion, so there could well be fireworks as the meeting’s details are released.”
Meanwhile, market participants were keeping an eye on Italy’s banking sector amid reports of possible state bailout of troubled Monte dei Paschi di Siena. The lender has reportedly asked the ECB for an extension to its €5bn rescue plan until January 20, from a previous year-end deadline. The deal was thrown into doubt after Italy's Prime Minister Matteo Renzi resigned following his defeat in a referendum at the weekend.
“The decision by the board of Monte dei Paschi last night to ask for an extension until mid-January from the ECB to pull together the €5bn for a privately funded capital injection would appear to suggest that any bailout this weekend if it were to happen is unlikely to be a voluntary one, and could be one that has the politically toxic consequences of bailing in retail bondholders,” said Michael Hewson, chief market analyst at CMC Markets.
“In asking for this extension it would appear that Italian officials have decided given the lack of volatility in the aftermath of last weekend’s vote, that they have the luxury of a little more time, despite the resignation of Mr Renzi. The risk is they could be misreading the reasons for why the markets appear unconcerned, given yesterday’s chatter that a bailout could be coming as soon as this weekend.”
Elsewhere, trade data showed Chinese exports rose 0.1% in dollar terms in November, surprising analysts who had expected a 5% decline. Imports gained 6.7%, compared to estimates for a 1.9% drop. The trade surplus narrowed to $44.61bn from $49.06bn, missing forecasts of $46.90bn.
In corporate news, Unicredit’s shares were under the cosh as Poland’s largest insurance company PZU SA and a Polish government vehicle agreed to buy a combined 32.8% stake in the lender.
Dutch mail delivery company PostNL NV plunged rejecting a revised takeover from Belgian postal service Bpost SA.
In London, Capita was a top faller as the company decided to offload the majority of its Asset Services division and a small number of other 'non-core' businesses in order to become leaner, cut debt and focus fully on business process outsourcing.