Europe shares enjoy best 2-week rally in 5 years on European Central Bank boost
European shares rose in early trade on Friday, enjoying their best two-week rally in five years, as investors cheered the European Central Bank's decision to buy government bonds.
(In pic) President of European Central Bank Mario Draghi speaks during a news conference in Frankfurt, Germany. (AP)
Cyclical stocks such as carmakers, seen as the big winners of the drop in the euro currency, featured among the biggest gainers, with BMW up 4.4 percent and PSA Peugeot Citroen up 3.7 percent. "The effect of QE is already here, look at the euro," said Alexandre Baradez, chief market analyst at IG France. "Its drop has been spectacular. It will be a major boost to exports and will lift confidence among company executives. Industrials will be among the top winners."
(In pic) An employee shows fifty-euro notes in a bank in Sarajevo. (Reuters)
ECB President Mario Draghi said the central bank would embark on quantitative easing - printing money to buy government bonds. Together with existing schemes, the programme will pump 60 billion euros a month into the euro zone economy from this March until at least September next year. The prospect of QE has knocked the euro lower in the past months, with the single currency hitting a low of $1.265 on Friday, down from $1.40 in May. A weak euro is seen boosting European corporate earnings this year, particularly for exporters. Strategists say a 10 percent fall by the euro translates into a 6 to 8 percent rise in earnings for the region's companies. The new ECB programme was also seen as boosting the region's economy overall, with Renault Nissan Chief Executive Carlos Ghosn upgrading his European car market growth forecast on Thursday. Ghosn told participants at the Davos World Economic Forum that he now expects Europe's car market to grow by at least 2 percent in 2015, against 1-2 percent previously.
(In pic) European Central Bank (ECB) President Mario Draghi and Vice President Vitor Constancio (L) leave after addressing an ECB news conference. (Reuters)
Euro zone banks, seen benefiting from a rebound in corporate lending as the ECB's quantitative easing kicks in, also featured among the top gainers on Friday. Raiffeisen Bank International rose 3.9 percent and Commerzbank was up 3.1 percent. At 0916 GMT, the FTSEurofirst 300 index of top European shares was up 1.4 percent at 1,474.15 points, a seven-year high.
(In pic) A security guard stands outside the headquarters of the European Central Bank in Frankfurt. (Reuters)
Analysts expect the ECB to learn from its mistake and predicted that it would no longer give a specific forward guidance and instead say that rates would stay exceptionally low for an extended period. (Reuters)
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