ECB stimulus draws tepid response from stocks; banks end flat

The European Central Bank headquarters in Frankfurt, Germany, on Aug 18, 2019.
The European Central Bank headquarters in Frankfurt, Germany, on Aug 18, 2019.PHOTO: REUTERS

BENGALURU (REUTERS) - European stocks edged higher in choppy trading on Thursday (Sept 12), with banks underwhelmed by the European Central Bank's stimulus measures while Washington's move to delay tariffs on Chinese goods boosted automakers and technology firms.

The pan-European stocks index gained as much as 0.8 per cent after the ECB cut its deposit rate to a record low of -0.5 per cent from -0.4 per cent and said it will restart bond purchases of 20 billion euros a month from November.

That initially sent bond yields tumbling, the euro down and euro zone stocks into positive territory.

Gains in the Stoxx index wore off as the session progressed, however, with euro zone banks swinging on the news that the ECB was easing the terms of its cheap loan scheme to banks and introducing a tiered deposit rate.

"I don't think this is a game changer," said Pictet Asset Management's chief strategist Luca Paolini.

"Even if it was a positive surprise in some areas, there were negative surprises overall. They basically did what the market expected and they've done it many times in the past."

Euro zone banks - one of the main beneficiaries of an investor pivot into value stocks in recent days - closed 0.24 per cent higher, while broader European banks finished unchanged.

Italian banks, which have big holdings of sovereign bonds, were an outperformer with a 1.2 per cent gain, owing to a recent surge in Italian government bond prices.

Trade headlines also swayed markets, with automakers jumping on a report that the Trump administration was considering an interim deal with China, although CNBC said that a senior White House official denied the report.

Offering relief to battered financial markets, President Donald Trump said the United States would delay increasing tariffs on US$250 billion worth of Chinese imports by two weeks as "a gesture of good will".

Optimism about a de-escalation in the economically damaging China-US trade war and expectations of monetary stimulus from the ECB have led major European indices to track higher this week.