The European Central Bank’s bond-buying “bazooka” fired global stock markets higher on Friday, but sent the euro diving to a new 11-year low.
The ECB had sparked a global rally Thursday after announcing a radical 1.14-trillion-euro ($1.27-trillion) bond-buying plans to boost lending and economic growth, while seeking to prevent a dangerous spiral of falling prices.
Equity investors welcomed the bank’s unprecedented quantitative easing (QE) stimulus, under which the ECB — led by President Mario Draghi — will buy up to 60 billion euros of assets per month until at least September 2016.
“Markets are still digesting yesterday’s bazooka from Mario Draghi and the ECB, with yields dropping sharply and equity markets pushing higher,” said CMC Markets analyst Michael Hewson.
“While asset prices surge it remains to be seen whether this extra cash will make that much difference in the absence of structural reforms.”
Frankfurt’s DAX 30 jumped 1.74 percent to 10,617.52 points in mid-afternoon trading, while the CAC 40 in Paris climbed 1.71 percent to 4,630.48 points compared with Thursday’s close.
London’s benchmark FTSE 100 index of top companies rose 0.12 percent to 6,805.10 points.
The Madrid stock market added 1.09 percent and Milan rose 0.45 percent, also extending the previous day’s bumper gains.
Athens equities meanwhile surged by more than 5.0 percent, lifted by the stimulus news ahead of Sunday’s snap general election.
In Asia Friday, Hong Kong climbed 1.34 percent, Tokyo jumped 1.05 percent, Sydney added 1.51 percent, while Shanghai rose 0.25 percent.
“ECB president Draghi launched an aggressive and open-ended extension of central bank asset purchases… providing a fillip for risk markets,” said RIA Capital Markets analyst Nick Stamenkovic.
The euro however hit another 11-year low of $1.1115 in London on Friday, the lowest level since September 2003.
It recovered slightly in mid-afternoon to $1.1228, still down from $1.1359 late in New York on Thursday.
– Euro approaching dollar parity? –
Analysts said the euro could slide further towards dollar parity as the ECB announcement underscores a growing policy divergence with the US Federal Reserve.
The Fed wrapped up its own QE programme in October and is now considering an interest rate hike this year.
“The key factor is that the ECB’s extension of QE is open ended,” added Stamenkovic.
“In other words, if euro area inflation fails to rise in coming months then further purchases are likely as it attempts to restore price stability over the medium-term.
“By contrast, the Fed looks set to normalise monetary policy with a tightening expected in mid-2015. Hence the euro looks increasingly likely to reach (dollar) parity by year-end, if not sooner.”
The ECB news also weighed on borrowing costs, with 10-year French, German, Spanish and Italian bond rates all striking record low levels.
Still European leaders on Friday continued to welcome the ECB’s move. French President Francois Hollande said the ECB was fulfilling its role when it “fights against unemployment” and makes “growth a priority”.
In New York, Wall Street opened mixed on Friday after a big jump the day before on the back of the ECB’s stimulus action.
The Dow Jones Industrial Average was down 0.05 percent 10 minutes into trade, and the broad-based S&P 500 slipped 0.10 percent. The tech-rich Nasdaq Composite was up 0.10 percent.
Traders meanwhile remain cautious before Sunday’s general election in Greece.
The looming ballot has raised concerns that a victory by the leftist Syriza party will force eurozone member Greece to renegotiate its bailout with international lenders.
“The potential for political uncertainty in Greece this Sunday evening will likely provide a further downside risk for the euro,” cautioned analyst Jameel Ahmad at trading firm FXTM.
German Chancellor Angela Merkel signalled Friday that Greece should stay in the eurozone, saying “at the heart of our principles lies solidarity. I want Greece, despite the difficulties, to remain part of our story,” she said.