European stock markets rally as ECB keeps interest rates on hold

LaToya Harding
·3-min read

WATCH: ECB leaves rates unchanged

European stock markets pressed ahead on Thursday as the European Central Bank (ECB) decided to leave interest rates unchanged — a move that had been widely expected.

In London, the FTSE 100 (^FTSE) closed 0.62 higher in to 6,938.24 points, while the CAC (^FCHI) jumped 0.96% and the DAX (^GDAXI) advanced 0.79%.

The ECB's governing council maintained the eurozone's headline interest rate at 0% and kept the deposit rate for banks at -0.5% in a near identical update to last month's. 

The central bank's suite of unconventional monetary tools were left at existing levels.

President Christine Lagarde said the EU was on track for a "firm rebound" later in the year but said the near-term outlook remained "clouded". Lagarde said the path of the COVID-19 pandemic remained the major driver of economic performance across Europe.

"There are clearly signs of improvement," she said. "On the other hand, we are clearly seeing continued contagion."

ECB president Christine Lagarde. Photo: Olivier Matthys/ Pool/Anadolu Agency via Getty Images
ECB president Christine Lagarde. Photo: Olivier Matthys/ Pool/Anadolu Agency via Getty Images

At its last meeting the ECB upgraded its inflation forecasts and president Christine Lagarde said the bank would step up the weekly purchase program in an attempt to keep a lid on yields. However some members are already calling for the program to end by March 2022.

"With Eurozone credit conditions tightening and governments’ grip on the virus in question, observers may wonder whether the ECB has anything left in the cupboard to deal with negative risks to growth and inflation," Melissa Davies, chief economist at Redburn, said.

"Any increased COVID restrictions and the risk of winter lockdowns point to the need for the ECB to do more, rather than less, in the coming months. 

"As things stand, ECB growth estimates are far too bullish for this year and the central bank risks falling behind the curve as Eurozone deflation pressures build in H2.”

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Across the pond, after a negative start, the S&P 500 (^GSPC) was flat, up 0.01% and the tech-heavy Nasdaq (^IXIC) jumped 0.26%. The Dow Jones (^DJI) edged 0.17% lower at the time of the European close.

“After two days of declines, US markets turned around yesterday, reversing most of their Tuesday losses, with the likes of the Russell 2000 and the Nasdaq leading the way,” Michael Hewson of CMC Markets said.

“While the about turn is a welcome respite from the start of the week, the rebound can’t disguise the divergence taking place in various countries when it comes to vaccination levels and infection rates.”

Despite these concerns, travel stocks rebounded on Wednesday, led by cruise lines and airlines.

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Asian stocks mainly rose overnight, extending a rebound in global markets after a sharp selloff earlier this week.

Japan led the gains with the Nikkei (^N225) rallying 2.38% after sliding around 2% in both of the last two sessions.

Chinese blue chips were mixed, however. The Hang Seng (^HSI) rose 0.51% while the Shanghai Composite (000001.SS) dipped 0.23%

Oil prices (BZ=F) also fell slightly on worries about rising COVID cases in some parts of the world, particularly India, which yesterday set a record for new coronavirus cases in a single day.

The country is the world’s third-largest oil importer, consuming almost 10% of global crude oil exports.

India reported more than 300,000 new coronavirus cases in a 24-hour period — the biggest one-day total seen anywhere across the globe since the start of the pandemic.

Earlier this week prime Minister Narendra Modi said that India was facing a coronavirus "storm" which was overwhelming its health system.

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