European stocks rally after ECB leaves interest rates unchanged

Christine Lagarde, President of the European Central Bank. European stocks rebounded on Thursday after the ECB’s interest rate meeting. Photo: Frédérick Florin/AFP via Getty Images

European stocks rallied on Thursday after the European Central Bank kept its key rate at 0% as the economic outlook for the eurozone darkens and the war in Ukraine drags on.

The FTSE 100 (^FTSE) rose 0.4% ahead of the long weekend. The French CAC (^FCHI) jumped 0.8% and the DAX (^GDAXI) 0.6% in Frankfurt.

The ECB left its marginal lending facility at 0.25% and its bank deposit rate at -0.5%, adding that rates will remain at record highs and not rise until projections show inflation. sustainable at 2%.

The central bank’s decision breaks with the emerging consensus of central banks around the world that rates must rise to calm inflation. Bloc inflation hit 7.5% in March and is expected to rise.

It said it would end its bond-buying program in the third quarter and plans to buy 40 billion euros ($43 billion, £33 billion) of bonds this month, falling to 30 billion euros in May and 20 billion euros in June.

“Under the current conditions of high uncertainty, the Governing Council will maintain discretion, gradualness and flexibility in the conduct of monetary policy,” the ECB said. “The Governing Council will take all necessary measures to fulfill the ECB’s mandate to pursue price stability and to help safeguard financial stability.”

Read more: UK inflation hits 30-year high of 7% as cost of living crisis deepens

“The ECB has decided not to follow the fad and has kept its hawks firmly in check,” said Chris Beauchamp, chief market analyst at online trading platform IG. As US and UK opt for further rate hikes, ECB says there is no need to rush as rate hikes come ‘some time’ after interest rate buying ends ‘assets.”

“This widening policy gap could be the break that European markets are looking for and certainly brings welcome relief to the negativity that has prevailed for most of the month.”

Oil prices retreated as the volatile market weighs a bigger-than-expected rise in U.S. crude inventories against a tightening in global supply.

Brent crude (BZ=F) fell 1% to $107.70 a barrel. US light crude (CL=F) was down 1% at $103.22 in electronic trading on the New York Mercantile Exchange at the time of writing.

Across the pond, U.S. benchmarks were mixed at the start of the earnings season, with early reports from big business arriving amid the highest inflation in four decades.

Wall Street’s S&P 500 (^GSPC) fell 11.98 points, or 0.3%, to 4434.61. The tech-heavy Nasdaq (^IXIC) fell 1%. The Dow Jones (^DJI) gained 0.4% at the London close.

The yield on the benchmark 10-year Treasury fell to 2.68% from 2.72% on Tuesday, extending its decline into a second day. Yields fall when prices rise.

Overseas markets followed a rebound on Wall Street overnight, ending a three-day losing streak. MSCI’s broadest index of Asia-Pacific stocks (AAXJ) excluding Japan rose 1.6%.

The Nikkei (^N225) rose 1.2% in Japan, while the Hang Seng (^HSI) edged up 0.5% in Hong Kong and the Shanghai Composite (000001.SS) gained 1. 5%.

South Korean stocks were the exception, falling after its central bank unexpectedly raised its policy rate by 25 basis points to 1.50%, the highest since August 2019, in a bid to rein in the soaring inflation. The KOSPI index (^KS200) fell 0.4%.

Asian markets including Hong Kong, Singapore and Australia are closed on Friday for the Easter holiday, as are major benchmarks in the UK, EU and US.

Watch: How does inflation affect interest rates?

Leslie M. Gill