European equities rose for a third straight day as investors brushed off fears about the Delta coronavirus variant and instead focused on bets for further monetary support from the European Central Bank.
The Stoxx 600 share index gained 0.8 per cent following a 1.7 per cent rise on Wednesday. The regional equity gauge was on course to end the week slightly higher and remained close to its all-time high despite a global market wobble on Monday. London’s FTSE 100 added 0.2 per cent.
Investors widely expect the ECB, at its meeting later on Thursday, to signal it will continue with the government debt purchases that have eased borrowing costs throughout the coronavirus crisis after its €1.85tn pandemic emergency purchase programme (PEPP) ends next year.
Such bond-buying programmes raise government debt prices, depress borrowing costs and can boost equity valuations by prompting investors to accept lower rates of earnings or dividends relative to share prices.
“Spikes in pandemic rates lead to markets getting worried about the fragility of the economic recovery,” said Zehrid Osmani, manager of Martin Currie’s global portfolio trust. But further lockdowns or other social restrictions would also lead to “central banks remaining very accommodative”, he said, “which naturally brings you towards equity markets in favour of bonds”.
The yield on 10-year German government debt, which moves inversely to the price of the benchmark eurozone fixed income security, was steady at minus 0.393 per cent on Thursday, about its lowest point since early February. The 10-year US Treasury yield rose 0.01 percentage point to 1.293 per cent.
“Recent Covid data point to another wave of infections, even in countries such as the UK that have vaccinated a large proportion of their populations,” said Paul Jackson, global head of asset allocation research at Invesco.
“With that backdrop, we do not expect the ECB to signal any tightening of policy at the upcoming meeting,” he said, “and wouldn’t be surprised to see some form of implicit loosening”.
The ECB launched the PEPP in March 2020, removing many of the rules that had constrained its previous bond purchases, and said it would not end “before the end of March 2022”.
With that deadline approaching, said Kevin Thozet, investment committee member at French asset manager Carmignac, the ECB would “want to avoid a tantrum” that would involve traders selling European government bonds in anticipation of the central bank winding down the PEPP.
“Even if they do not mention the PEPP at the meeting,” he said, “that would be a dovish sign as it implies the end date is not worrying them, and therefore that it is likely to be moved forward”.
The euro was steady against the dollar at $1.179, having lost 0.6 per cent against the US currency so far this month.
In Asia, Hong Kong’s Hang Seng index closed 1.8 per cent higher and South Korea’s Kospi 200 gained 1.3 per cent following a strong session on Wall Street driven by robust quarterly earnings from Coca-Cola, advertising group Interpublic and telecom conglomerate Verizon.
Futures markets signalled the S&P 500 and the technology-focused Nasdaq Composite would each gain 0.2 per cent in early New York dealings.
Brent crude, the international oil benchmark, rose 1.1 per cent to $73.05 a barrel.