By Carla Mozee, MarketWatch
Rotation into European equities isn't over, says Barclays
LONDON (MarketWatch) -- European stocks climbed to multiyear
highs Thursday as the European Central Bank further outlined its
massive asset-buying program, setting a time for the launch of the
trillion-dollar program for Monday.
ECB President Mario Draghi said the central bank is willing to
buy government bonds and other debt with negative yields. The
limit, however, is the bank's own deposit rate, which stands at
minus 0.2%.
Eurozone bond yields fell to session lows after Draghi's
deposit-rate comment. But the Stoxx Europe 600 sprang up 0.8% to
393.78, continuing its recent run of record highs.
An upgrade in the ECB staff's growth forecasts for the eurozone
"is obviously good for stocks," but also lending support for
equities was the bank's forecast for inflation to hit 1.8% in two
years, said Richard Perry, market analyst at Hantec Markets, after
Draghi completed his news conference in Cyprus.
The 2017 inflation forecast "comes in underneath the [bank's 2%
inflation] target, which suggests they are going to push further
ahead with QE," Perry said.
Read the recap of Draghi's news conference.
(http://blogs.marketwatch.com/thetell/2015/03/05/european-central-bank-live-blog-draghi-expected-to-offer-qe-details/?mod=MW_story_latest_news)
The ECB in January said it would buy 60 billion euros ($66.3
billion) of government bonds and other debt in a bid to fend off
the risks of deflation and encourage economic growth.
While stocks held to higher ground during Draghi's conference,
the euro (EURUSD) swung to its lowest level since 2003, rising
above $1.11 following the growth projections then falling back when
Draghi spoke about negative-yield bond buys.
"A significant portion of the European bond market is in
negative-yielding territory, and it means the ECB is open to still
being able to buy all that debt ... it just reaffirmed the
weak-euro position," said Perry.
After the close of equity trading Thursday, the euro fell below
$1.10. Read more in Currencies.
(http://www.marketwatch.com/story/euro-sinks-to-fresh-11-year-low-as-ecb-looms-2015-03-05)
On the major indexes, Germany's DAX 30 ended a fresh all-time
high as it jumped 1% to 11,504.01. The U.K.'s FTSE 100 also
(http://www.marketwatch.com/story/ftse-100-wobbles-as-aviva-rises-admiral-falls-boe-statement-on-tap-2015-03-05)
(http://www.marketwatch.com/story/ftse-100-wobbles-as-aviva-rises-admiral-falls-boe-statement-on-tap-2015-03-05)scored
its best close on record
(http://www.marketwatch.com/story/ftse-100-wobbles-as-aviva-rises-admiral-falls-boe-statement-on-tap-2015-03-05)
as it rose 0.6% to 6,961.14. Earlier Tuesday, the Bank of England
left monetary policy unchanged, marking the sixth year the key
lending rate has been at 0.5%.
France's CAC 40 surged 0.9% to 4,963.51, its highest close of
the year.
It appears the market "is at best only halfway done" with a
rotation into European equity funds from U.S. funds, Barclays said
in Thursday report analyzing fund flows. Cyclical stocks are
outperforming defensives and value is outperforming quality, said
Barclays European equity strategists led by Dennis Jose. The
drivers for the move -- which included better economic data, rising
U.S. bond yields and QE from the ECB -- "should remain in play,"
they added.
From the economic front Thursday, German data showed
manufacturing orders in January fell by 3.9%
(http://www.marketwatch.com/story/german-manufacturing-orders-fall-by-39-2015-03-05)
in adjusted terms, a bigger decline than the 1% pullback expected
by analysts polled by The Wall Street Journal. But Germany's
economy ministry slightly lifted the previously announced December
figure, showing growth at a 4.4% rate, compared with the 4.2%
initially reported.
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