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European stocks coast as investors look ahead to ECB decision

Equities updates

European equities drifted and government bonds softened ahead of a European Central Bank meeting later in the week that could mark the beginning of the end of crisis-era monetary stimulus. 

The Stoxx 600 index dropped 0.3 per cent in early trades, just shy of its lifetime high of 475.8 reached in mid August. London’s FTSE 100 fell 0.4 per cent. 

The yield on Germany’s 10-year government bond, which moves inversely to its price and acts as a benchmark for eurozone borrowing costs, rose 0.03 percentage points to minus 0.33 per cent, around its highest since mid-July. Italy’s equivalent bond yield rose 0.04 percentage points to 0.73 per cent. 

After a brief recession last year, the eurozone economy grew faster than expected by 2 per cent in the second quarter of 2021 from the first. Consumer price inflation hit a decade high of 3 per cent in August from the same month in 2020. 

The ECB, which has been buying €80bn a month of government and corporate bonds to keep borrowing costs low during the pandemic, is widely expected to reduce its monthly purchases to about €60bn. 

“There could be a short impact on market sentiment” from such a move, said Elisa Belgacem, senior credit strategist at Generali Investments. “But the market is already very well prepared for ECB tapering and I do not see any major reactions in bond prices from here.” 

In Asia, Chinese shares rallied after data showed the nation’s exports had increased 26 per cent in August from the same time last year, a contrast with recent manufacturing data that indicated industrial activity was weakening. The CSI 300 index of mainland Chinese shares rose 1.2 per cent, led by basic materials stocks.

In Tokyo, the Topix share index gained 1 per cent, continuing a rally that began last week after Prime Minister Yoshihide Suga announced he would step down, driving hopes of his successor launching economic stimulus measures to combat the spread of coronavirus. 

Futures markets signalled Wall Street’s S&P 500 would add 0.1 per cent at the start of New York trading, while the top 100 stocks on the technology-focused Nasdaq would rise 0.1 per cent. 

The yield on the 10-year Treasury bond added 0.04 percentage points to 1.36 per cent, as expectations rose of the US central bank announcing a reduction of its $120bn a month of crisis-era bond purchases later this year. 

In currency markets, the euro was steady against the dollar, purchasing $1.1865. Sterling slipped 0.2 per cent against the dollar to $1.1381. The dollar index, which measures the US currency against six others, rose 0.2 per cent. 

Brent crude, the oil benchmark, added 0.2 per cent to $72.35 a barrel. 

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