Stocks gained and the euro fell against the dollar Thursday after the European Central Bank announced additional stimulus measures to boost sagging eurozone inflation.
ECB President Mario Draghi exceeded market expectations by cutting the bank’s main policy rate to zero and lowering its deposit rate further into negative territory to -0.4% from -0.3%.
The bank also announced plans to expand the bank’s asset purchase program to 80 billion euros a month and start buying investment grade corporate bonds. Mr. Draghi will speak at a press conference later Thursday.
The Stoxx Europe 600 gained 2.5% after the announcement, more than doubling its gains, while the euro fell 1.4% against the dollar to $1.0845.
“The market was expecting a lot from the ECB, and the early evidence suggests that Mario Draghi delivered,” says Alan Gayle, director of asset allocation at RidgeWorth Investments.
Banking stocks soared after the announcement, with UniCredit SpA gaining 11% and Deutsche Bank up 7%.
Futures pointed to a 1% opening gain for the S&P 500. Changes in futures don’t necessarily reflect market moves after the opening bell.
In bonds, Treasurys rose briefly before turning lower after the ECB announcement, while German bonds pared earlier gains.
While expectations of action were high ahead of the announcement, investors were cautious due to uncertainty over what form the stimulus might take. Mr. Draghi had also disappointed markets in December with a smaller-than-expected package of easing measures.
The meeting also comes at a time when investors are questioning the ability of central banks to boost growth and inflation. Headline eurozone inflation fell back into negative territory in February, weighed down in part by a fall in oil prices. Many analysts expect the bank’s inflation forecasts to continue to fall.
Even as markets move its way on Thursday, economists say the ECB still faces an uphill battle in returning inflation to its medium-term target of close to 2%. That may require structural reforms from eurozone governments to improve the flexibility of their labor markets, among other measures.
“The ECB has so far done a good job. But the ball is lying at the feet of governments, and they are only acting very slowly,” said Thomas Köbel, economist at SEB.
Wall Street closed slightly higher Wednesday, led by a rise in energy shares as U.S. oil futures hit a three-month high. Oil retreated, however, early Thursday, with Brent crude last down 0.8% at $40.75 a barrel.
In metals, gold was down 0.9% at $1,246 an ounce, while copper futures in London were down 0.5% at $4922 a ton.
Earlier, trading in Asia was mixed. Japan’s Nikkei Stock Average gained 1.3% as the yen fell against the dollar, boosting the competitiveness of exporters. The dollar was last up 0.8% against the yen at ¥114.1510.
Shares in Shanghai and Hong Kong fell, however, after data showed China’s consumer inflation picked up in February, exceeding economists’ expectations. Higher inflation makes it more difficult for China’s central bank to stimulate the economy by cutting interest rates. The Shanghai Composite Index closed down 2%.
