Stocks Edge Higher on Trade Optimism, ECB Stimulus: Markets Wrap

Henrietta Brewer
September 13, 2019

On Thursday, the central bank for the 19 countries that use the euro cut the rate on deposits it takes from banks to minus 0.5 percent from minus 0.4 percent.

The move marks the first time the deposit rate has changed since 2016, as Europe's economy has struggled amidst losses in demand both from Brexit and the trade war, while quantitative easing was last used in December of past year.

The 10-year German Bund yields also rose back to minus 0.521% DE10YT=RR .

The dollar has also drawn support from a spike in US Treasury yields, with the benchmark 10-year yield at a five-week high.

The ECB has joined the US Federal Reserve and other central banks around the world in lowering rates and make credit cheaper in an effort to help the economy in the face of slowing global trade and other uncertainties.

Given that markets do not expect rates to rise for almost a decade, such a formulation suggests that purchases could go on for years, possibly through most of Christine Lagarde's term leading the bank.

The yen, widely considered a safe-haven currency, tends to rise during times of heightened economic or market stress and vice versa. Markets in mainland China and South Korea were closed for public holidays.

By 7:10am (AEST), ASX futures were up 24 points or 0.4 per cent.

Elsewhere, European equities edged higher.

The single currency, which had fallen 3.5 per cent against the dollar since the European Central Bank began signalling an easing of its monetary policy in June, initially surged then quickly reversed course to ease.

The European Central Bank (ECB) on Thursday made a decision to cut key interest rates, confirming a new stage of bond purchases to shore up euro zone growth.

The rate cut was widely expected, but the revived bond purchases were a surprise.

Like the Fed, the European Central Bank has had to change its stimulus stance as the global economic outlook has grown shakier.

It also changed the modalities of its quarterly targeted longer-term refinancing operations (TLTRO III) "to preserve favorable bank lending conditions, ensure the smooth transmission of monetary policy and further support the accommodative stance of monetary policy", including an extension of the maturity from two to three years. Most economists expect additional monetary policy easing in October and December. At the time, Fed officials did not say whether they anticipated additional cuts, but warned it was not the beginning of an aggressive rate-cutting series. But deteriorating economic data pushed the bank to start developing plans for more stimulus.

According to Thursday's (September 12th) ECB rate decision released by GMT 11.45, ECB slashed its key deposit rate to a record low of -0.50 per cent from an earlier -0.40 per cent, which was well in line with analysts' expectation, while ECB had also issued a separate statement saying that it would restart bond buybacks with purchase of 20 million euros every month from November.

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