WSJ: Stocks Steady After ECB Leaves Interest Rates Unchanged
European stocks and U.S. stock futures held steady Thursday after the European Central Bank left its key interest rate unchanged as expected.
Investors were looking to the bank’s press conference at 8:30 a.m. EDT, where ECB President Mario Draghi will provide more details on the bank’s plans to combat ultralow inflation.
Futures pointed to a flat open for the S&P 500, after gains in energy shares on Wednesday helped send the index to fresh closing highs for the year.
The Stoxx Europe 600 was up 0.6%, unchanged after the bank’s announcement, while the euro was up 0.4% against the dollar.
“The most interesting comments are going to be on interest rates going forward,” said Nicola Mai, a portfolio manager at Pacific Investment Management Co. “I think Draghi at the very least will say rates are part of the toolbox.”
Since the bank announced an expansive package of easing measures in March, including further cuts to key rates, the euro has continued to rise against the dollar.
“In stock markets and in currency markets, there’s central bank fatigue,” said Mark Glazener, fund manager at Robeco.
“Commentators around the world are increasingly doubting the effectiveness and efficiency of these measures,” Mr. Glazener said, noting negative interest rates will likely hurt banks’ profitability without improving corporate lending or the underlying economy.
The Bank of Japan also meets next week, and many investors expect the bank to signal future interest rate cuts. Former Bank of Japan deputy governor Kazumasa Iwata on Thursday said the central bank would need to lower its interest rate to as much as minus 1% from negative 0.1% to tackle deflation.
But the yen has continued to rise sharply since the Bank of Japan adopted negative interest rates, while shares of banks and exporters have come under pressure.
On Thursday, stocks in Japan hit a two-month high and ended up 2.7% as a weaker yen alleviated pressure on shares of exporters. Still, the Nikkei Stock Average remains lower than it was before the bank announced its stimulus measures.
Shares in Hong Kong and Australia also gained, though the Shanghai Composite Index ended lower in volatile trading. That came despite the People’s Bank of China’s injection of 220 billion yuan into the financial system Thursday through the purchase of short-term loans known as reverse repurchase agreements.
Thursday’s moves followed an upbeat session on Wall Street, spurred by gains in price of oil. Brent crude oil was last flat in choppy trade to $45.81 a barrel after hitting a five-month high on Wednesday.
After a two-month rebound, the S&P 500 and Dow industrials are both less than 1.5% off their record closes hit in May 2015.
”It’s been an incredible rally,” said Joe Tanious, strategist at Bessemer Trust. But with relatively full valuations in the U.S. and lackluster corporate earnings, “it’s very difficult to identify drivers that can move the market a heck of a lot higher from here,” he said.
