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Europe: Stocks hit by firm euro as Draghi shoos away hopeful doves

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[BENGALURU] Euro zone shares underperformed their broader European peers on Thursday, hit by a stronger euro after the European Central Bank matched investors' expectations in keeping rates untouched but refrained from providing as dovish an outlook as hoped.

Euro zone equities fell 0.2 per cent, while the pan-European Stoxx 600 marked time. A firmer euro trims the value of euro zone companies' overseas earnings when converted back to the common currency, hitting their overall profitability.

Germany's DAX shed 0.2 per cent, while French stocks fell 0.3 per cent. London-traded equities eked out a gain.

Thursday's performance trims the degree to which euro zone stocks have relatively outperformed the European benchmark in the quarter to date.

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Market voices on:

"It would have been very, very difficult for the ECB to out-dove the market and push yields even lower," said Andrea Iannelli, investment director at Fidelity.

"More importantly he did say rates are not going anywhere until 2020, potentially even longer… that doesn't really help banks.

European lenders had a torrid day, flipping into negative territory and ending 1 per cent lower, as the ECB did not detail as generous a cheap loan lending programme for banks as investors had expected.

Elwin de Groot, Rabobank's head of macro strategy for the euro zone and ECB, told the Reuters Global Markets Forum the 10 basis point premium on the programme compared to the previous series was a signal the ECB is keen on making the banks view it more for liquidity than as a funding tool.

Milan-traded equities edged up, although Italian lenders reversed early gains to slide 1.2 per cent with UniCredit falling 1.1 per cent, while Banco BPM dropped 2 per cent.

Auto-makers and their suppliers declined 0.9 per cent, as Renault SA dived 6.4 per cent after Fiat Chrysler Automobiles walked away from an over US$35 billion merger with the French carmaker.

Real estate stocks fell 2.2 per cent as reports Berlin authorities were planning to impose a cap on rents hit German property firms Vonovia and Deutsche Wohnen to the tune of 4.7 per cent and 7.7 per cent, respectively.

Utilities stocks, considered a defensive sector, clocked the biggest gains in Europe as they rose 1.3 per cent.

Stocks in Copenhagen rose 1.6 per cent. Mette Frederiksen, leader of the Social Democrats, said she would launch talks to form a government after a centre-left election victory put her on course to become the country's youngest ever prime minister.

REUTERS