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Equities surge, Euro tumbles as ECB cuts rates, expands stimulus

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BLOOMBERG

The markets asked, and European Central Bank President Mario Draghi
delivered.
The Stoxx Europe 600 Index surged and government bonds rose, while the euro slid as the ECB announced cuts to key interest rates and increased the scope of its bond-buying program. U.S. stock-index futures jumped. South Korea’s won rallied after policy makers refrained from lowering borrowing costs, New Zealand’s bonds surged on a surprise rate cut, and Hungary’s forint dropped after an official hinted that policy may be loosened.
Anticipation of further stimulus had risen after the ECB said it would review its program as persistent weakness in consumer prices and a Chinese slowdown threaten the euro-area recovery. Thursday’s moves add to a wave of global monetary stimulus this year that includes a lowering of Chinese lenders’ reserve requirements and Japan’s introduction of a negative interest rate. The International Monetary Fund said Tuesday that volatile financial markets and low commodity prices were heightening risks for the global economy.
“This is an over delivery, a comprehensive delivery of easing,” said Richard Benson, a money manager at Millennium Global Investments. “This will be negative for the euro, but positive for euro stocks. This is pro risk.”
The ECB cut the rate on cash parked overnight by banks by 10 basis points to minus 0.4 percent, and its benchmark rate to zero. Bond purchases were raised to 80 billion euros ($87 billion) a month, starting in April, and corporate bonds will now be eligible. Speaking at a press conference after the announcement, Draghi also forecast rates to stay at their present levels or lower for an extended time, with risks to the region’s growth outlook tilted to the downside.

Stocks
The Stoxx Europe 600 Index soared 2.2 percent at 1:49 p.m. in London, heading for a two-month high. All industry groups except commodity producers advanced.
European shares have become increasingly responsive to the ECB’s updates, with the moves in the Euro Stoxx 50 Index on rate-decision days exceeding the monthly average since last July. In December, when investors were disappointed by the extent of additional stimulus, the gauge swung 4.9 percent intraday, the most since at least 2012.
Hugo Boss AG gained 3.2 percent after saying it’s maintaining its dividend at last year’s level, after a series of profit warnings and strategic mishaps. Aviva Plc rose 6.5 percent after reporting a Solvency II ratio of 180 percent and raising its dividend by 15 percent.
Lagardere SCA tumbled 9.6 percent after its full-year net income halved. Carrefour SA slipped 2.9 percent after France’s largest retailer announced a lower-than-forecast dividend, even as full-year profit increased.
Standard & Poor’s 500 futures rose 0.9 percent, indicating equities will extend gains after Wednesday entering the eighth year of a bull run, as investors scrutinized better-than-expected initial jobless-claims data for indications of the health of the
U.S. economy and the trajectory of
interest rates.

Bonds
Spain’s 10-year bond yield dropped 18 basis points to 1.38 percent, Italy’s fell 16 basis points to 1.25 percent, while Portugal’s slid 30 points to 2.83 percent after the ECB’s decision. Benchmark German 10-year bund yields declined eight basis points to 0.16 percent, after climbing earlier to 0.24 percent, the highest since Feb. 18.
The yield on New Zealand’s two-year bonds plunged 18 basis points to 2.03 percent following Thursday’s interest-rate cut, while that on the country’s 10-year notes touched a record-low 2.91 percent. The Reserve Bank of New Zealand lowered its benchmark interest rate a quarter of a percentage point to a record 2.25 percent and said further easing may be needed owing to a worsening outlook for the global economy. The change was forecast by just two of 17 economists surveyed by Bloomberg.
Abengoa SA bonds gained following a debt-restructuring agreement. The renewable-energy company is seeking to avoid becoming Spain’s largest corporate insolvency.
Credit risk in Europe tumbled the most in about eight months.
The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies dropped 10 basis points to 82 basis points. A measure of swaps on junk-rated companies slid 34 basis points to 341 basis points. Both indexes fell to the lowest in about two months.
Currencies
The euro slid 1.3 percent to $1.0855, cementing its position as the world’s worst-performing major currency over the past month. Traders’ expectations for price swings in the euro over the next week climbed to the highest since January 2015 on a closing basis, reaching 18.2 percent.
The New Zealand dollar was little changed, after sliding as much as 0.5 percent.
South Korea’s three-year bonds fell for the first time in four days, pushing their yield four basis points higher to 1.51 percent. The yield on U.S. Treasuries due in a decade declined two basis points to 1.86 percent.

Emerging Markets
The Hungarian forint weakened the most among emerging currencies. Hungary’s central bank deputy governor, Marton Nagy, said policy makers may reduce the benchmark interest rate this year to help ease inflation.
The MSCI Emerging Markets Index added 0.7 percent, its first gain in three days. All ten industry groups advanced with technology and raw material stocks leading gains.
China’s Shanghai Composite Index slumped 2 percent, as traders weighed the level of government support. The suspected failure of state funds to prop up stocks on Thursday removed one of the key props for the world’s worst-performing equity market this year amid deteriorating economic data and disappointment over stimulus measures announced during annual policy meetings this week. Data on Thursday showed February consumer prices rose the most since mid-2014.

Commodities
Oil traded at about $38.23 a barrel in New York, after jumping 4.9 percent on Wednesday to $38.29, the highest close since Dec. 4. U.S. gasoline consumption was at the highest level since September over the past four weeks, reducing inventories for a third week, according to data from the Energy Information Administration.
Gold fell 0.1 percent in London after the ECB’s policy review. Copper declined 0.8 percent, after gaining 1.4 percent on Wednesday, and aluminum and nickel also fell.
“A slight retreat in safe-haven demand may be weighing on gold as oil and equities are rising at the moment,” said Helen Lau, an analyst at Argonaut Securities (Asia) Ltd. in Hong Kong.

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