European Markets Finished Mostly Lower After Late Sell-Off

by Linda Olson July 21, 2017, 0:08
European Markets Finished Mostly Lower After Late Sell-Off

European stocks remained higher Thursday, as investors sifted through corporate earnings reports and heard the European Central Bank say it will hold its key interest rates steady.

The ECB's decision over when to wind down the stimulus program, however, is precarious because any call would immediately affect bond prices and currency rates.

Draghi also cheered investors after stating that the strength of the Euro was not problematic, indicating that the European Central Bank won't be taking any steps in the near-term to weaken the common currency.

Responding to reporters, Draghi said the Governing Council was unanimous in communicating the forward guidance and in setting no precise data to discuss changes to the policy stance in future.

Furthermore, "well-anchored expectations about future interest rates will help the European Central Bank limit unwanted large market reactions to the impending end of QE", adding to the pressure to hold rates down, Deka's Toedtmann noted. This suggests that easy monetary policy will have to continue for years to come.

The ECB is expected to lay the groundwork for an autumn policy shift when it meets, after ECB chief Mario Draghi opened the door to tweaks in a speech in Portugal last month. Inflation remains at 1.3 percent, well below the bank's goal of just under 2 percent it considers best for the economy.

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Chicago futures speculators had at the same time sold the yen believing that the Bank of Japan would stick to its loose monetary policy at Thursday's monetary meeting, with their net short position at two-year highs. Economists surveyed by Bloomberg before the meeting had predicted the central bank would use the September gathering to signal a reduction in the monthly pace of QE. The bank is expected to leave its interest benchmark unchanged at zero.

ECB President Draghi was unable to push the Euro lower and a fresh dollar slide in USA trading triggered renewed gold support with prices just above $1,245 despite a lack of investor interest.

Markets will be scrutinising his comments for any signs as to a change in the ECB's stimulus policies. The company said it expects full-year underlying operating margin to grow by at least 100 basis points, as against 80 basis points projected earlier.

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"I$3 n an attempt to prepare the market, Mario Draghi is expected to hint at a scaling back of their asset purchase program towards the end of the summer", wrote Konstantinos Anthis, a researcher at ADS Securities. In particular, an end to the bond purchases could mean more pressure on highly indebted eurozone members such as Italy, which are now paying very little to refinance their large debt piles.

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