While you were sleeping: ECB measures lift equities

Wall Street climbed to record highs as investors welcomed unprecedented stimulus from the European Central Bank which underpinned expectations for the worldwide economy.

Meanwhile, US weekly jobless claims were better than expected, a welcome sign before the monthly government jobs report due on Friday. Initial claims for state unemployment benefits rose 8,000 to a seasonally adjusted 312,000 for the week ended May 31, according to Labor Department data.

In the final hour of trading in New York, the Dow Jones Industrial Average gained 0.64 percent, the Standard & Poor’s 500 Index rose 0.68 percent, and the Nasdaq Composite Index climbed 1.08 percent. The Dow and S&P 500 touched record highs earlier in the session, respectively reaching 16,845.31 and 1,941.74.

Gains in shares of Caterpillar and Microsoft, up 2.5 percent and 2.3 percent respectively, led the Dow higher.

“The stimulus from Europe is a positive thing, especially when you compare it to the fact that the US is starting to ease up,” Joe Bell, senior equity analyst at Cincinnati-based Schaeffer’s Investment Research, told Bloomberg News. “Stimulus is being added from a different market.”

The European Central Bank cut its benchmark interest rate to 0.15 percent, from 0.25 percent. It also lowered the deposit rate by 10 basis points to minus 0.10 percent, meaning the ECB is charging banks for depositing money with it. It is the first major central bank to take one of its main rates negative.

The ECB also opened a 400-billion-euro (US$542 billion) facility to encourage banks to lend more freely to businesses in the euro zone.

The measures also include “preparatory work related to outright purchases of asset-backed securities,” ECB President Mario Draghi told reports in Frankfurt on Thursday.

“The key ECB interest rates will remain at present levels for an extended period of time in view of the current outlook for inflation,” Draghi said. “This expectation is further underpinned by our decisions today. Moreover, if required, we will act swiftly with further monetary policy easing.”

“The Governing Council is unanimous in its commitment to using also unconventional instruments within its mandate should it become necessary to further address risks of too prolonged a period of low inflation,” according to Draghi.

Europe's Stoxx 600 Index ended the session with a 0.4 percent gain from the previous close. Germany’s DAX rose 0.2 percent, while France’s CAC 40 added 1.1 percent. The UK’s FTSE 100, however, slipped 0.1 percent.

The DAX broke through the 10,000 point mark for the first time before easing.

The euro added 0.4 percent against the US dollar. The respite for the single currency is already being viewed as temporary, encouraging bets that the ECB will need to be even more aggressive in the months ahead.

At least for today though, Europe’s top policymakers are getting a positive response.

“The ECB is providing stimulus and that will help the global economy. It’s a powerful force in keeping world interest rates low,” Kathy Jones, fixed income strategist at Charles Schwab in New York, told Reuters. “Draghi delivered."

(BusinessDesk)