LONDON: European stocks ended stronger Wednesday, scored 5th straight gain after reports said the European Central Bank could spend $58 billion a month on bond buying.
Investors are fixated on Thursday’s ECB meeting, at which it’s broadly expected to announce a big boost to its asset-purchase program to stimulate lackluster growth in the region.
The Stoxx Europe 600 SXXP, +0.61% closed up 0.6% for a fresh seven-year high. London’s FTSE 100 UKX, +1.63% jumped 1.6%, while Germany’s DAX DAX, +0.41% and France’s CAC PX1, +0.87% gained 0.4% and 0.9%, respectively.
Ahead of Thursday’s meeting came word that the ECB’s executive board has proposed bond purchases of roughly 50 billion euros ($58 billion) per month that would last for a minimum of one year, according to people familiar with the matter. European and U.S. stocks erased losses after this news.
European government bond yields, which fall as bond prices rise, continued to hover around euro-era lows. The euro EURUSD, -0.06% strengthened against the dollar but remains around $1.16.
Barclay’s economists wrote in a note that, like many of their peers, they expect a “sizable program” from the ECB, which includes around €500 billion to €750 billion of European government-bond purchases, which “could have a tangible impact on the economy.”
“Moreover, we feel that the stock market doesn’t price this in,” they added.
They predict that consumer discretionary stocks should do better than other parts of the market if the ECB delivers on investors’ expectations. “A steepening of the yield curve, potentially driven by [quantitative easing], has in the past been associated with an outperformance from the sector,” they wrote.
Nonetheless, some strategists and economists warn that high expectations have also inflated the risk of disappointment.
“We expect that the ECB will announce a purchase program of around EUR500 billion which could disappoint as many investors appear to be hoping for more,” said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management. He added that if that is the case, there could be a fierce market reaction and the euro could climb back to $1.25.
Andrew Bosomworth, head of German portfolio management for Pimco, which globally manages around $1.68 trillion in assets, said the market reaction ultimately will depend on the three details of any announced program: size, distribution and how risk will be shared.
