Di Nikola Kedhi
Actions by major central banks were in focus this week as the Fed and ECB made announcements that affected not only stock, but also currency and bond markets. After a long exam session, Tra i Leoni brings you an overview of the major financial news of the week.
The European stock market ended on a high note last week, increasing 2.2% on Friday. This was due to ECB’s President Mario Draghi announcing that additional stimulus was underway. The news restored confidence to investors who had begun to doubt the ECB would expand Quantitative Easing further. Although it has been alternating between gains and losses all October, the Stoxx 600 has increased 8.1% this month overall. However, even Draghi’s declaration was not enough to stop a 0.4% and 1.1% drop, on Monday and Tuesday respectively, in European stocks due to disappointing earnings reports, especially in the energy sector. Analysts say this is some sort of a rest period for markets after last week’s surge. After the welcome news of Friday, investors are now carefully analyzing Draghi’s speech and predicting what will be the central bank’s next move.
Awaiting the Federal Reserve’s announcement on Wednesday, Stoxx 600 rallied 1.1%, as energy companies rebounded as well. The Fed announced, yet again, that they will keep interest rates unchanged at 0-0.25%, something that is not surprising as many have already predicted that rates are more likely to increase in December or even next March.
Asian markets slumped before Fed’s meeting, with MSCI Asia Pacific Index falling 0.2%. This decrease comes days after People’s Bank of China announced they will cut their interest rates by 25 basis points to 4.35% to further increase stimulus and help raise capital. Meanwhile, the Topix (Tokyo Stock Price Index) had a 0.1% increase as Bank of Japan is also expected to make an announcement later this week.
In the currency market, the dollar reached its highest levels in two months against other currencies on Wednesday in anticipation of the Fed’s announcement. The euro fell around 0.1% trading at $1.1034, still staying above its two-month low level of $ 1.0989 attained on Monday. On the same day, the Yen was traded at $120.41 increasing 0.2% compared to the previous day.
Draghi’s declarations triggered a bounce in European government bonds, causing yields to reach their lowest levels since April. On Wednesday, in Germany the 10-year bond yield dropped from 0.45% to 0.43%, whereas the 2-year yield fell to -0.322%. In France the 2-year yield decreased to -0.28%, in Belgium to -0.298% and in Finland to -0.29%. These changes show that Mr. Draghi’s decision for more expansion has been well received.