ECB Keeps Monetary Stimulus on Track Amid Recession Concerns
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The European Central Bank will keep its aggressive monetary stimulus in place and lag the Federal Reserve in phasing it out, ECB President Christine Lagarde said, as the eurozone wrestles with a fresh wave of Covid-19 infections that likely tipped the bloc back into recession early this year. A resurgence of the pandemic in Europe and a sluggish rollout of vaccines have kept businesses shut across swaths of the Continent, driving a divergence with the U.S. economy, which is benefiting from a hefty dose of government spending and speedier Covid-19 vaccinations. At a news conference, Ms. Lagarde said the eurozone economy wouldn't return to its pre-pandemic size until the second half of next year. That would be more than a year after the Congressional Budget Office expects the U.S. economy to have regained its precrisis size. Divergence between the ECB and Federal Reserve, arguably the world's two most influential central banks, has sweeping implications for the prices of bonds and other financial assets. "If you look at where the Fed is, and where we are, if you look at expectations in the United States and the euro area, we are not on the same page," Ms. Lagarde said. The ECB said in a statement Thursday that it would keep its key interest rate at minus 0.5% and continue to buy eurozone debt under an emergency EUR1.85 trillion bond-buying program, equivalent to $2.2 trillion, through at least March 2022. It said it would buy those bonds at a "significantly higher pace" during the first months of this year, repeating a pledge made last month. The eurozone economy is likely to grow at an annualized rate of 6% in the second quarter of 2021, after contracting 1% in the first three months of the year, according to JPMorgan. The U.S. economy will likely grow at an annualized rate of almost 10% in the second quarter after around 5% in the first quarter, JPMorgan said.
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After a sideways movement within narrow limits, the Swiss stock market closed well maintained on Thursday. While the overall market lacked impetus, Nestle (+2.9%) and Credit Suisse (-2.1%) were clearly in the spotlight with their quarterly reports. This was topped by a surprising capital measure of the major bank. The SMI gained 0.1 percent to 11,225 points. Among the 20 SMI stocks, there were 14 price losers and six price winners. 83.49 (Wednesday: 48.43) million shares were traded. At Credit Suisse, the tension was particularly high after the bank had recently incurred billions in losses due to the collapse of the hedge fund Archegos. After all, aside from Archegos, operating performance was strong across all divisions, according to CS CEO Gottstein. The collapse of Archegos nevertheless pushed the bank into the red. To strengthen its capital base, Credit Suisse is now raising fresh money with a profit-diluting mandatory convertible bond. This further upset the market, with the share price falling by over 5 percent at times during the course of the day, but then recovering somewhat. However, it had already fallen for the most part on the previous days. According to analysts at Vontobel, the full extent of the Archegos debacle is not yet foreseeable. The damage caused will probably only become visible in the course of the year and in the years thereafter. In the Swiss home market in particular, there has been a serious loss of image. The share price of CS competitor UBS fell by 0.6 percent. Meanwhile, food giant Nestle turned over more on an organic basis in the first quarter than analysts had expected. The stock market said: "The plus of 7.7 percent is amazing".
European stocks rise following solid corporate earnings and after the European Central Bank maintained its loose policies to support the eurozone economy. The Stoxx Europe 600 climbs 0.7%, the FTSE 100 gains 0.6%, the DAX adds 0.8% and the CAC advances 0.9%. "European markets have been cheered by the continued dovish stance of the ECB and their decision to significantly increase the pace of bond purchases for the second quarter," IG analyst Chris Beauchamp says. Wartsila jumps 16% after the Finnish power equipment maker's 1Q orders beat forecasts. Volvo gains 3% after its 1Q earnings exceeded estimates. After poorly rated figures, Renault in Paris, on the other hand, fell by 1.3 percent. Business was better than expected for spirits producer Pernod Ricard (+1.3%). As the figures of the brewery group Heineken had already shown, sales are picking up again after the Corona crisis. Deutsche Börse's figures were above expectations (+0.4%). Although the extremely strong prior-year quarter was not achieved, estimates were exceeded. When presenting its final figures for the first quarter, software group SAP (up 3.4%) reiterated its expectation of a gradual increase in demand in the second half of the year as the Corona pandemic subsides. CEO Christian Klein spoke of one of the strongest quarters in SAP's history. The Walldorf-based company's stock also benefited from the presentation of figures by its U.S. subsidiary Qualtrics, which subsequently rose by more than 20 percent. First-quarter figures from Accor (-0.2%) were described in trading as "poor, but expectable." The French hotel chain continued to suffer from low business travel activity due to Corona, with sales roughly halving from the year-ago quarter. Hensoldt rose 1.7 percent. U.S. financial investor KKR plans to divest further shares in the German sensor specialist.
Mr. Biden plans a capital-gains tax increase to as high as 39.6% on the wealthiest Americans, an increase from the current 20%, Bloomberg News reported on Thursday. Major indexes wavered between small gains and losses for much of the session before tumbling on the headlines. Major indexes wavered between small gains and losses for much of the session before tumbling on the headlines. The S&P 500 fell 38.44 points, or 0.9%, to 4134.98. The Dow Jones Industrial Average dropped 321.41 points, or 0.9%, to 33815.90. The Nasdaq Composite slid 131.81 points, or 0.9%, to 13818.41. Although the Dow chemical giant increased sales and profits more than expected, the share price still fell by more than 4 percent, after gaining almost 4 percent the day before. Since the beginning of the year, the stock is up 17 percent. The figures from AT&T (+4.2%) were well received, especially in view of rising customer numbers at the telecommunications company. At American Airlines (4.5%), investors continued to act cautiously, especially since the outlook for the industry in the pandemic is still difficult to assess. The airline narrowed its loss, but it was still more than $1.2 billion for the quarter. Delta Air Lines slipped 2.3 percent. The quarterly report of Qualtrics, which exceeded analysts' expectations, was truly celebrated. The SAP subsidiary, which has been listed on the Nasdaq since January, achieved a turnaround in segment earnings and increased total revenue by 36 percent. The share price virtually exploded by almost 23 percent. Blackstone (+3.3%) benefited from record quarterly earnings of $1.75 billion. The market capitalization of the investment company reached $100 billion for the first time ever during trading. Analysts believe it is possible that Blackstone will be able to join the S&P 500 index this year.
Japanese stocks were down, dragged by falls in electronics, tech and auto stocks, amid continuing concerns about additional Covid-19 countermeasures and higher U.S. capital-gain taxes. The stock markets in China are surprisingly robust. Shanghai is holding up well and Hong Kong is even firmer. The Kospi in South Korea is also doing well and turns slightly into the plus.
U.S. Treasury yields were little changed after the capital gains tax reports lifted bonds in the U.S. on Thursday, pulling yields lower. The yield on the benchmark 10-year Treasury note rose as high as 1.587% during Thursday's session before settling at 1.554%.
Dt. Bank raises ASML target to EUR 560 (500) - Hold
Berenberg lowers Zur Rose target to CHF 400 - Buy
Citi raises Safran target to EUR 127 (123) - Neutral
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