Europe: Stocks turn higher as ECB slows bond buying on recovery

[FRANKFURT] European stocks gained, erasing earlier losses, after the European Central Bank (ECB) said it will slow down the pace of its pandemic bond-buying programme in a sign of confidence in the region's economic recovery.

The Stoxx 600 Europe Index added 0.3 per cent by 3.32 pm in London after earlier dropping as much as 0.9 per cent. Real estate, consumer products and industrials were among the top gainers. Energy stocks dropped the most as oil declined after China announced that it has released supplies from its strategic reserves.

The ECB on Thursday decided to conduct purchases at a "moderately lower pace" than in the previous two quarters. Officials also reiterated a pledge to keep the 1.85 trillion (S$2.93 trillion) euro programme running until March 2022 or later if needed, signalling they are not yet ready to discuss how and when to end emergency stimulus. This is a relief for equity investors that have been concerned that stimulus measures might get pulled back more quickly.

"The ECB is slowing the pace of its emergency asset purchase programme. But this is not a tapering decision," said Elga Bartsch, head of macro research at the BlackRock Investment Institute. "ECB asset purchases look here to stay as the new policy framework paves the way for looser for longer monetary policy in the euro area."

ECB president Christine Lagarde said the economy in the region will return to pre-crisis levels by year-end and that the "increasingly advanced" rebound could be maintained with less monetary help. She also cautioned that the global spread of the delta variant could yet delay the full reopening of the economy.

The rally in the Stoxx 600, which has gained 17 per cent this year, has stalled after hitting an all-time high in August. Equities in the region have fallen with global peers this week on mounting fears over the recovery and reduced support expected from central banks.

"There is a sense of pessimism throughout equity markets. In recent days the rally has seemed to lose momentum," said Lewis Grant, senior portfolio manager at Federated Hermes. "Fears that the spreading Delta strain is curtailing the pace of the post-pandemic recovery, along with the prospect of dwindling central-bank stimulus, has left investors questioning the market's elevated valuation."

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