ECB to Keep Monetary Stimulus in Place
Topic of the day
The European Central Bank upgraded its economic outlook for the eurozone but said it would keep its aggressive monetary stimulus in place, signaling a likely divergence with the Federal Reserve, which could move toward phasing out its emergency measures as early as next week. At a news conference on Thursday, ECB President Christine Lagarde said she expects a robust bounceback in economic activity across the continent as the pace of Covid-19 vaccinations picks up and stores and restaurants reopen. She cautioned that the region's economic recovery lags behind that of the U.S., however, with more than one European in seven still unemployed or on furlough from their job. U.S. inflation surged to 5% in May on an annual basis, the highest annual inflation rate in nearly 13 years, compared with only 2% in the eurozone. While the U.S. economy may already have surpassed its pre-pandemic size, the eurozone isn't expected to make up the ground lost to the pandemic until next year. The ECB said in a statement 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. The move had been widely expected and created few ripples in financial markets. The yield on 10-year Italian debt slipped to 0.750% from 0.776% on Wednesday, while the yield on the Greek equivalent declined to 0.808% from 0.833%. Analysts said the ECB would likely need to shift course in the coming months and unveil plans to scale back its bond purchases to prevent the economy from overheating. That could happen after policy meetings in September or December, they said.
The Swiss stock market ended trading on Thursday with a slight gain, continuing the positive trend. The SMI gained 0.2 percent to 11,811 points. Among the 20 SMI stocks, there were 12 price losers and eight winners. 31.08 (previously: 32.54) million shares were traded. Among the pharmaceutical stocks, which had been very strong in recent days, Novartis in particular scored again on Thursday. The share gained 1.6 percent and was thus at the top of the SMI. Lonza gained 1.3 percent after the share had already benefited strongly since the beginning of the week from the US approval of Biogen's Alzheimer's drug. Roche, meanwhile, gained only 0.2 percent. Holcim advanced 1.4 percent, supported by positive analyst opinions on the construction sector. Deutsche Bank said major European building materials companies have posted gains of 20 to 50 percent so far this year. It said there are more catalysts that should fuel growth. Sika (+0.1%) benefited moderately from a price target increase by analysts at Jefferies, with a "buy" rating reiterated. Under pressure were the shares of the two luxury stocks Richemont (-1.4%) and Swatch (-1.8%). The share of the index heavyweight Nestle was down 0.2 percent.
European equity indices closed roughly net flat on Thursday, split between the European Central Bank's (ECB) continued ultra-accommodative policy and last month's acceleration in inflation in the United States. The Stoxx Europe 600 index remained almost stable at 454.6 points. In Paris, the CAC 40 and the SBF 120 each gave up 0.3%. The DAX 30 in Frankfurt lost 0.1%, and in London, the FTSE 100 gained 0.1%. Soitec (+2.9%) is targeting a tripling of its total sales and an EBITDA margin of around 35% for its electronics division by the end of the fiscal year ending March 2026. Music publisher and distributor Believe fell 12.5% to 17.15 euros on its first day of trading on Euronext Paris. The group announced on Wednesday evening that the subscription price for its new shares had been set at 19.5 euros, the bottom of the range of 19.5 euros to 22.5 euros initially envisaged. Peugeot and Citroën have been indicted in France as part of the investigation into the polluting emissions of diesel vehicles of several car manufacturers, their parent company Stellantis (-1.4%) announced Wednesday evening. Axa (-0.7%) is offering to pay its 15,000 restaurant customers in France a total amount of about 300 million euros to settle out of court the business losses suffered by these entrepreneurs during the health crisis. The current price of Rémy Cointreau (+2.1%) represents "a good entry point" while the company's fundamentals remain "intact", according to Goldman Sachs, which raised its recommendation on the stock from "neutral" to "buy" and its price target from 155 to 190 euros. Altice UK, owned by businessman Patrick Drahi, announced that it has acquired a 12.1% stake in BT (+6.6% in London) but has no plans to file a takeover bid for the British telecommunications group. The British online car classifieds company Auto Trader (+6.5% in London) announced the resumption of its share buybacks and published results for its 2020-2021 financial year that were down year-on-year but above analysts' expectations.
U.S. stocks edged higher Thursday after data showed another leap in consumer prices and a continuing recovery in the labor market as the economy emerges from the Covid-19 pandemic. The S&P 500 set a new closing record, climbing 19.63 points, or 0.5%, to 4239.18. The Dow Jones Industrial Average jumped 19.10 points, or 0.1%, to 34466.24. The technology-focused Nasdaq Composite rose 108.58 points, or 0.8%, to 14020.33. The Dow and Nasdaq are both within 1% of the all-time highs they hit this spring. Oxford Industries, the owner of the Tommy Bahama, Lilly Pulitzer and Southern Tide brands, climbed $8, or 8.2%, to $106.10, after reporting a first-quarter profit on higher sales. The U.S. government has decided to sell at least 100 737 MAX aircraft to Boeing (+0.1%), Bloomberg reported Thursday, citing people close to the matter. The U.K.'s Competition and Markets Authority intends to open an investigation into Amazon's (+2.1%) data practices, according to the Financial Times. Electronic Arts (-0.1%) stabilized after being penalized during the session by press reports of a hack of the source code of one of its most popular games, FIFA 21. Hertz Global Holdings (+3.5%) had its reorganization plan validated by the US courts. The car rental company could emerge from bankruptcy at the end of the month, more than a year after it filed for bankruptcy protection. The Biden administration plans to donate 500 million doses of Pfizer (+2.2%) and BioNTech (-0.7%) vaccine to other countries. The two pharmaceutical companies said Thursday that 200 million doses would be donated this year, followed by 300 million in the first half of 2022. GameStop stock (-27%) remains extremely volatile after a new CEO and CFO were appointed this week on the release of first-quarter results.
Asian markets closed broadly higher. In Tokyo, the Nikkei index with 28,955 points hardly moves from the spot, it is slowed by the yen, which closes slightly higher against the dollar compared to the same time the previous day. In Seoul, the Kospi edged up 0.7 percent and in Hong Kong, the Hang Seng moves up a little with 0.39%. Only Shanghai (-0.25%) hangs back with a small minus.
On Thursday, the yield on 10-year US Treasury notes edged down to 1.458%, its lowest level in more than three months, from 1.489% on Wednesday. A combination of tepid economic data, the Federal Reserve’s message that it won’t quickly withdraw stimulus to ward off inflation, and strong demand for bonds from investors overseas have been dragging yields down.
Jefferies raises Sika target to CHF 353 (325) - Buy
Berenberg increases Telefonica to Buy (Hold) - EUR 4.80 (4.20)
Citi raises target National Grid by 3% to 1,003 p - Buy
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