Stocks in Europe climbed to a two-month high this week, as European Central Bank (ECB) president Mario Draghi reiterated his commitment to raising inflation as fast as possible and China cut interest rates.
The STOXX Europe 600 Index added 2.1 percent to 345.24 at the close of trading on Friday, snapping a two-day losing streak. The equity benchmark has advanced 2.9 percent this week amid investor speculation of further ECB stimulus. Stocks extended gains on Friday after China slashed interest rates, with miners leading.
“There are two key drivers, with the first being Draghi saying inflation needs to be boosted as soon as possible, which makes quantitative easing more likely,” Steen Jakobsen, chief investment officer at Saxo Bank A/S in Copenhagen, said by telephone. “The decision of the Chinese central bank to cut interest rates shows that China is also reacting to the slowdown. This makes the market perceive a perfect risk-on day for Friday.”
Speaking at the European Banking Congress, Draghi said the ECB must drive inflation higher quickly and will widen its asset-purchase program if necessary.
Any new action would follow measures including interest rate cuts, long-term bank loans and covered bond purchases, with the buying of asset-backed securities said to have started on Friday. Draghi has also declined to rule out buying government bonds.
He said this month that ECB staff have been told to study ways to boost an economy that grew just 0.2 percent last quarter and where inflation of 0.4 percent is persistently below the bank’s goal.
China cut benchmark interest rates for the first time since July 2012 as leaders seek to support growth in the world’s second-largest economy. The reduction follows liquidity injections and targeted cuts to reserve requirements.
National benchmark indices climbed in 17 of the 18 Western European markets on Friday. Spain’s IBEX rose 3.1 percent to post its biggest advance since July last year, while Italy’s FTSE MIB added 3.9 percent for its largest gain in more than two years. Portugal’s PSI 20 Index rose 2.5 percent and Germany’s DAX increased 2.6 percent.
A gauge of commodity producers posted the biggest gain of the 19 industry groups on the STOXX 600 after China cut interest rates.
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