Europe: Stocks await ECB stimulus hopes

[LONDON] Weak inflation data spurred hopes the European Central Bank could deliver more stimulus this week, though European bourses traded in a tight range Wednesday, Frankfurt and Paris ceding spartan ground while London rose slightly.

The data appeared to cement hopes that the ECB - which announces the outcome of its latest monetary policy meeting on Thursday - will ramp up its quantitative easing (QE) bond-buying programme.

Inflation in the 19-nation eurozone area was unchanged in November at just 0.1 per cent, official data showed, dashing expectations of an acceleration to 0.2 per cent.

Analysts queued up to stress the influence on the market of the impending ECB decision with the data giving ECB chief Mario Draghi "a little bit more ammunition," according to James Hughes, chief market analyst with GKFX.

For Mr Hughes, a cut in the discount rate or more QE "will see the data take centre stage as investors await something to drive EURUSD (the euro against the dollar) even further lower.

The Euro remains under pressure and could well be set to retest the lows for the week at 1.0495 and even push lower." The European single currency fetched US$1.0575 Wednesday at the European close from US$1.0634 in late US trade on Tuesday.

Spreadex analyst Connor Campbell said: "The eurozone's inert inflation appears to give Mario Draghi the green light to increase his quantitative easing scheme tomorrow. Well, investors and analysts seem to think so."

Former IMF deputy director Desmond Lachman of the American Enterprise Institute indicated that "while the ECB will present its action as an appropriate monetary policy response to a weakening Eurozone economic recovery the main channel through which its actions will work will be a further significant depreciation of the euro.

"While this might be good for the European economy, it will impose a substantial burden on the rest of the global economy." The region's markets had fallen Tuesday as strong economic data gave rise to doubts over the likelihood of eurozone stimulus.

London's FTSE 100 index added 0.6 per cent at the close on strong pharmaceuticals but Frankfurt posted a 0.6 per cent drop - troubled Volkswagen being off 1.8 per cent after reporting a drop in German sales - and Paris fell 0.2 per cent.

"There can be little doubt that the ECB will press ahead with further stimulus at its December meeting on Thursday," added IHS Global Insight economist Howard Archer.

"Indeed, there are high expectations that the ECB will deliver a pretty aggressive package of measures on Thursday, despite serious reservations among some members of the (ECB) governing council led by the German contingent." Wall Street dipped although Yahoo shares opened higher on a report that the company could sell its core Internet business.

Shortly after the opening bell, the Dow Jones Industrial Average stood off 0.13 per cent at 17,864.24, while the broad-based S&P 500 and the tech-rich Nasdaq Composite Index were also marginally off.

Yahoo jumped 4.9 per cent following a Wall Street Journal report that said the company is considering the sale of its Internet properties in light of uncertainty surrounding the spin-off of its lucrative stake in Chinese e-commerce giant Alibaba.

All three main indexes on Wall Street ended higher on Tuesday as investors bet that an increase in interest rates - expected to be announced by the Federal Reserve this month - would be slow and gradual.

Earlier, Asian markets faced fresh volatility as weak manufacturing data highlighted weakness in the global economy.

Asian investors got their first chance to react to US data out Tuesday that showed economic activity contracted in November at the fastest pace since June 2009. That followed official figures showing that a gauge of Chinese manufacturing activity hit a three-year low in November.

Shanghai closed 2.3 per cent higher after tumbling more than two per cent at one point.

AFP