European stock markets rallied on Friday, driven by optimism over the decision by the European Central Bank to expand its stimulus programme.
London’s FTSE 100 and the region-wide Stoxx 600 gained 0.8 per cent in early morning trading, while Frankfurt’s Xetra Dax jumped 1.3 per cent.
The move higher marks the continuation of a sharp rally in global stocks in recent weeks after a cautious pause on Thursday, with the Stoxx 600 marching about a third higher from its low since mid-March.
Travel and leisure stocks led the rally, albeit coming from low levels, as countries begin to form bilateral agreements to reopen their borders in an attempt to reboot the beleaguered tourism industry.
The expansion of the ECB bond-buying programme by a further €600bn through to at least June 2021 was more aggressive than most economists had expected and added to hopes that a quick recovery from the pandemic may follow the sharp falls in economic activity.
Greek and Italian government borrowing costs were stable, after falling to their lowest levels in nearly three months on Thursday.
“Policymakers’ efforts to contain strains in the currency union will remain a key driver of eurozone assets this year,” said Franziska Palmas, an economist at Capital Economics.
Investors moved out of the safety of German government bonds for a second straight session, sending the yield on the 10-year Bund to -0.3 per cent — its highest level in two months.
The euro advanced a further 0.3 per cent against the US dollar, taking gains since May 25 above 4 per cent as it reached its highest level since early March.
The ECB’s action follows similar moves by central banks in the US, Japan and UK. Together with China’s central bank, their combined balance sheets have risen from $5tn in 2007 to more than $23tn, according to research firm Haver Analytics.
But analysts have warned that the ECB could need to do more to support an economic recovery and keep markets buoyant. Christine Lagarde, ECB president, said the eurozone economy was “experiencing an unprecedented contraction” and the recovery had been “tepid” compared with the hit to GDP caused by the pandemic.
In the US, futures markets tipped the S&P 500 to follow European stocks and rise 0.8 per cent.
However, the bullish sentiment could be tested by the release of US employment figures later on Friday that will offer the latest glimpse into the state of the world’s biggest economy in the wake of the coronavirus pandemic.
The jobs data are expected to show that unemployment rose to a record high in May. That would follow the slowdown in US jobless claims last week to 1.9m, disappointing economists who had been anticipating a lower figure.
Official data released on Thursday showed that first-time unemployment benefit claims by Americans last week slowed for the ninth straight week to reach a total of 43m since mid-March but it undershot expectations for a quicker drop.
“It is premature to argue that the crisis is over, and that the world is heading into a V-shaped recovery,” said Luca Paolini, chief strategist at Pictet Asset Management. He added that a “second wave of the [coronavirus] pandemic can’t be discounted”.
In the Asia-Pacific region, Japan’s benchmark Topix index rose 0.5 per cent, Australia’s S&P/ASX 200 gained 0.1 per cent and Hong Kong’s Hang Seng added 1.7 per cent. China’s CSI 300 index of Shanghai and Shenzhen-listed stocks added 0.5 per cent.
Oil prices rose higher as Opec and its allies agreed to meet over the weekend to discuss the possibility of extending production cuts. Brent crude, the international benchmark, rose 1 per cent to trade above $40 a barrel, while West Texas Intermediate, the US marker, gained 0.6 per cent at $37.63 per barrel.
Additional reporting by Martin Arnold in Frankfurt