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EU Markets Revive After ECB Indicates Continuation of Stimulus

European Central BankThe European Central Bank President Mario Draghi has indicated that the Quantitative Easing (QE) program which is currently ongoing as part of its stimulus efforts will not be stopped abruptly as it was feared by some market experts.

Draghi stated this after the latest policy meeting of the Bank which concluded earlier this week. ECB's governing council has decided to keep the interest rates unchanged and made no changes to its monetary policy. Draghi said that the council hadn’t discussed tapering of the QE program and added that the council hadn’t discussed if the bank’s 80-billion- euro-per-month ($87 billion) asset buying plan will continue after March 2017.

Market participants expect Draghi to clarify on ECB’s position in December.

European Central Bank

In a statement, Carsten Brzeski of ING Diba bank said

The recovery of the eurozone economy is not weak enough to justify more stimulus but also not strong enough to light-heartedly talk about tapering. This is why the ECB is simply buying time.

By December 2016, the ECB is expected to be in a better position to assess the economic climate after the conclusion of US elections and Italy’s referendum on constitutional reform. Most expect the QE program to be extended for 6 months post March 2017. The news boosted European markets with all most all of them posting gains, led by a surge in lenders.

Spain’s IBEX 35 Index saw a rise of 1.2 percent, while Germany’s DAX Index went up by 0.4 percent as did France’s CAC 40 Index.

European shares have been battered this year as growth in the region remains poor and the uncertainty from Brexit has hit business confidence. Euro Stoxx Banks Index climbed by 1.9 percent. Banks saw their share prices rising after speculation hit markets that Draghi might extend the restriction on assets eligible for buying. Banks have suffered the most in the low-interest regimen with dropping profitability

Draghi has insisted that low interest rates have worked. He cited a recent ECB bank lending survey that showed that both households and businesses were benefiting from easier access to credit and looser repayment terms. According to him, without such stimulus, the euro region might have not been able to proceed towards reaching the ECB’s target inflation rate of 2.0 percent.

Earnings announcements by companies for the quarter showed mixed results. Deutsche Lufthansa AG raised its profit expectation, resulting in its prices rising by 7.5 percent. Tele2AB and Pernod Ricard SA were some of the other companies strong that had a strong performance.


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