By Josie Cox
European shares once again neared multiyear highs Tuesday,
buoyed by expectations that the European Central Bank will this
week venture into uncharted territory by launching a stimulus
program aimed at spurring Europe's ailing economy back to
health.
By midmorning, the Stoxx Europe 600 was up 0.6%--close to a
seven-year high--while London's FTSE 100 and France's CAC 40
climbed 0.4% and 0.7% respectively. Germany's DAX 30 rose 0.4%,
closing in on an all-time high scored Monday.
Government bonds in many Southern European countries continued
to hover close to record highs too, driven by expectations that the
ECB will announce that it will begin buying sovereign bonds in an
effort to beef up its balance sheet.
"We expect the ECB to announce a program of around EUR500
billion-EUR750 billion of [European government bond] purchases and
our economists believe that the ECB will signal it will stay open
so long as inflation and inflation expectations remain unacceptably
low," Barclays strategists wrote in a note.
On Monday, French President François Hollande said in a speech
to business leaders at the Élysée Palace that he too expects the
ECB to announce that it will buy sovereign debt--a move that he
said "will provide significant liquidity to the European economy
and create a movement that is favorable to growth."
Strategists at Société Générale, meanwhile, said they anticipate
a program from the ECB that includes sovereign, agency, and
corporate bond purchases on Thursday.
"Given that a broad consensus expects a substantial quantitative
easing plan to confront deflation risk and aid a stalling economy,
disappointing the markets with the scope of the QE plan is a risk,"
they said.
Denmark on Monday became the latest European country to cut its
interest rates in an attempt to damp investor interest in the
krone, ahead of the ECB meeting and to prevent the euro from losing
too much ground against it.
Nationalbank--whose main policy role is to maintain the
stability of Denmark's currency against the euro to provide
stability for the nation's exporters and keep inflation low and
stable--cut its deposit rate to minus 0.2% from minus 0.05%, and
its lending rate to 0.05% from 0.2%.
Strategists agreed, however, that Monday's move didn't mean that
the central bank won't act again, as early as Thursday, depending
on what the ECB announces.
The euro remained under pressure against the dollar on Tuesday,
trading at around $1.1587, taking losses over the last month to
almost 15%.
In stark contrast to the ECB, the Federal Reserve officials are
staying on track to start raising short-term interest rates later
this year.
Elsewhere in currency markets, the Swiss franc remained close to
parity with the euro after the country's central bank last week
shocked markets by scrapping its long-standing cap on the strength
of the currency.
In early trading the euro was at 1.02 francs--around 15% lower
than a week ago. Swiss stocks, which took a beating after last
Thursday's decision, continued to recover, with the SMI up by
around 1% in early trading. Swiss banks Credit Suisse Group AG and
UBS AG's shares edged higher too, but remained around 13% and 18%
lower than last week's levels.
Brent crude was around 0.9% lower on the day at $48.39 a barrel.
Gold rose 0.6% to $1,284.80 a troy ounce.
Write to Josie Cox at josie.cox@wsj.com
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