European shares made gains yesterday in anticipation that the ECB will today indicate that it is willing to extend measures aimed at stimulating the euro zone.
The governing council of the bank convenes for the first time since markets nose-dived on the back of fears about the strength of the Chinese economy. Mario Draghi, the ECB president, is expected to use the post meeting press conference to raise the possibility of the stimulus package – known as quantitative easing (QE) – being extended.
“The economic benefits of the ECB’s QE programme are fading, inflation expectations are low and global growth is under threat from a rapidly slowing Chinese economy.
“We expect the ECB will have to do more to address the slowing momentum. The tone at tomorrow’s ECB meeting is likely to be dovish.”
The pan-European FTSEurofirst 300 index ended 0.2 per cent higher at 1,395.70 points after falling to a low of 1,383.54 earlier in the day. Benchmarks in London, Paris and Frankfurt were up 0.3 to 0.4 per cent.
“We expect some more volatility going forward, but we see the recent sell-off as a correction and not the start of a bear market,” Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets, said.
“Possible actions by some central banks such as China doing more to stimulate its economy, the European Central Bank extending its bond-buying programme and the Fed delaying an interest rate hike are likely to support the market.”
Analysts said US private jobs data prompted some investors to believe the Federal reserve might not start its rate hike cycle from this month. The ADP National Employment Report showed US private employers added a smaller than expected 190,000 jobs in August.
The more comprehensive non-farm payrolls report is due tomorrow, the last monthly report before the Fed meets on September 16th. It is widely expected to make an announcement on rates at the meeting.
“The market seems to be willing to seize any kind of information that supports the theory that the Fed might not raise interest rates in September,” IG analyst Chris Beauchamp said. – (Reuters/Financial Times Limited 2015)
