European shares rise amid ECB stimulus hopes

European equities reached record highs today as investors await a move from the European Central Bank.

Blue avatar for guest contributors
By :  ,  Financial Analyst

European stocks rose today (January 19th) to their highest level since 2008 on hopes that the European Central Bank (ECB) will announce a plan for quantitative easing (QE) this week. The Stoxx Europe 600 Index added 0.4 per cent to 353.86 at 15:20 GMT in London.

Optimism on the US economy also boosted sentiment, after it emerged that consumer confidence is at its highest in 11 years. Wall Street’s S&P 500 was up 1.3 per cent on Friday.

Rumours that QE is to be announced on Thursday (January 22nd) were boosted last week when the Swiss National Bank (SNB) decided to remove its cap on the currency's value against the euro.

"It has taken the market by complete surprise," Jonathan Webb, head of FX strategy at Jefferies in London, told Reuters last week. "The SNB probably expects the ECB to launch QE next week and along with the Greek elections coming up, it would make it pretty tough on the Swiss to keep bidding the euro. So they have abandoned the cap and cut rates deeper into negative territory."

The eurozone economy registered weak growth in December, according to the Markit/CIPS survey. The region's composite purchasing managers' index (PMI) fell to 51.4 last month from an earlier estimate of 51.7. However, this was better than November's reading of 51.1.

Markit said its latest PMI survey suggested the eurozone economy grew by just 0.1 per cent in the last three months of 2014.

Persistently low inflation since the start of last year has raised the threat of deflation. The problem has been exacerbated since the summer by the falling price of oil.

Chris Williamson, chief economist at Markit, said the weakness of the latest PMI surveys would "add to calls for more aggressive central bank stimulus, including full-scale quantitative easing, to be undertaken as soon as possible".

This comes after ECB president Mario Draghi stated in a recent interview with German newspaper Handelsblatt that deflation was a threat and the central bank needs to be prepared to counter it. 

"The ECB is currently technically preparing to adjust the size, speed and composition of our measures at the start of 2015, should it become necessary," he said.

The market is now waiting for Thursday’s ECB decision and how big the QE program will be.

Find up to date information on the FTSE 100 and spread betting strategies at City Index.

Related tags:

Open an account today

Experience award-winning platforms with fast and secure execution.

Web Trader platform

Our sophisticated web-based platform is packed with features.
Economic Calendar