European shares rise ahead of more ECB stimulus, while another delay to Brexit talks hit the pound
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- European shares edged up ahead of a European Central Bank meeting that is expected to yield more monetary policy support for the eurozone, while Brexit talks kept the pound under pressure.
- The FTSE 100 got a lift from a weaker currency, despite data that showed the UK economy almost ground to a halt in October, even before a national lockdown came into force.
- "Today's meeting is also likely to be important in the context of trying to keep a lid on the euro," CMC Markets chief strategist Michael Hewson said of the ECB decision later.
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European equity indices rose on Thursday, ahead of a European Central Bank meeting that is widely expected to yield more monetary stimulus for the euro zone, while a sober read on the UK economy and ongoing Brext talks hit the pound.
The ECB has signaled it will expand its existing arsenal of asset-purchase programs to keep credit flowing easily to lenders, businesses and households, given it believes the eurozone risks more sustained damage from the coronavirus crisis, even as a vaccine is rolled out.
Economists expect a top-up of at least €500 billion ($600 billion) to the central bank's existing €750-billion ($907 billion) pandemic emergency purchase program (PEPP) and for this and other measures to be extended by a minimum of six months.
"One thing the ECB could do is extend the PEPP by a further 6-12-months into 2022, an extension of QE, if you like, and possibly increase the amount by €500bn, but anything beyond that could see splits on the governing council, with a number of members pushing back against further large-scale stimulus measures," CMC Markets chief strategist Michael Hewson said.
"Today's meeting is also likely to be important in the context of trying to keep a lid on the euro, which has already broken above the $1.2000 area, and could well head towards the $1.2500 area in fairly short order," Hewson said.
The euro rose fairly broadly, gaining against the dollar, the yen and the Chinese yuan. The single currency is tied with the Swiss franc for the position as 2020's best-performing major currency, with a gain of 8% each. Since April, the euro has gained around 13% against the dollar, compared with a 10% rise in the Swiss franc.
The Stoxx 600 was flat on the day, but set for a gain of 0.9% this week, while the DAX rose 0.1%, Madrid's IBEX rose 0.2% and the CAC-40 gained 0.3%. Asian stocks were mixed, with Chinese benchmarks up around 0.1%, while the Nikkei fell 0.2% and the KOSPI lost 0.7%.
US stock futures nudged higher, suggesting the major indices will open modestly in the green later in the day. Futures on the S&P 500, the Dow Jones and the Nasdaq 100 traded between flat and 0.3% up on the day.
Meanwhile, data earlier showed the UK economy grew for a sixth month in October, but by just 0.4%, the slowest rate of expansion in six months. Over the three months to October, activity grew by 10.1%, in line with expectations, but the economy is still 7.9% below where it was in February and is expected to shrink further, as COVID-19 forces repeated shutdowns.
"Unsurprisingly, October GDP marks the post-April peak in output before GDP falls back in when we get the November figures, reflecting the month-long lockdown across England," ING analyst James Smith said.
"We're expecting something in the region of a 7% fall in GDP on the month," he added.
Conservative prime minister Boris Johnson on Wednesday met European Commission president Ursula von der Leyen to try to work through the remaining hurdles to a trade deal after the United Kingdom fully leaves the European Union on December 31.
Talks finished without any kind of resolution, and will resume at the weekend. There are still major gaps between the two sides, with fishing being a major sticking point.
The pound tumbled, falling against all major currencies. Against the dollar, the pound lost 0.5%, while against the euro, it fell 0.8% and against more economically-sensitive currencies, such as the Australian and New Zealand dollars, it dropped around 1%. The FTSE 100 rose by 0.5%, making it the top-performing benchmark in the region, thanks in part to the weakness in the currency.
"Deadlines have come and gone, and it appears the market will be tolerant of more slippage on the deal's timeline, and I suspect even into 2021," Axi chief market strategist Stephen Innes.
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