LONDON: European shares rose on Thursday as the ECB kept its policy stance largely unchanged and signalled a steady reduction of stimulus over the coming months, spurring money markets to trim rate hike bets for the year.
The pan-European STOXX 600 index rose 0.7%, broadening a rise of 0.1% from earlier in the day, while euro zone shares advanced 0.6%.
The European Central Bank stuck to its plans of finally ending its stimulus programme in the third quarter, but avoided mentioning a precise schedule, stressing uncertainties around the Ukraine war. Short-dated yields and the euro were driven lower.
“With rate hikes expected to start some time after the end of asset purchases, this sequence provides the ECB flexibility and optionality for the coming months depending on economic developments,” said Adrien Pichoud, chief economist at Syz Bank.
ECB President Christine Lagarde said the bank will only start raising interest rates “some time” after it has ended its net asset purchases. Money markets trimmed their rate hike bets, pricing in about 65 bps of rate hikes by year-end from 70 bps earlier.
The ECB is facing a tough policy trade-off that is far more complex than in other developed markets, said Anna Stupnytska, global macro economist at Fidelity International.
“As the growth shock becomes more evident, the ECB’s focus will likely shift away from high inflation towards trying to limit economic and market distress... Contrary to market pricing, we do not expect the ECB to hike rates until the fourth quarter of this year or early 2023,” Stupnytska said.
The ECB is lagging most other major central banks, which started raising interest rates last year.
Tech stocks were the only sector in the red, shedding 0.3%, while battered travel and leisure stocks gained the most, with low-cost airline Wizz Air jumping 7.7% on signs of encouraging summer bookings.
Birkin bag maker Hermes gained 2.7% after its quarterly sales beat estimates, lifted by strong appetite for luxury accessories.
Volkswagen fell 1.5% after warning of a cloudy outlook, saying it had started to feel the impact of the Ukraine war on supply chains and raw materials prices in the first quarter.
Worries about rate hikes, a prolonged Ukraine conflict and mixed earnings have investors concerned, causing the STOXX 600 to end the holiday-shortened week 0.2% lower.
European stock markets will be closed on Friday and Monday for Easter holidays.