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(Reuters) – European shares rose on Thursday as the central bank kept its policy stance largely unchanged and signalled a steady reduction of stimulus over the coming months, spurring money markets to trim rate hike bets for the year.
The pan-European STOXX 600 index rose 0.5%, broadening a rise of 0.1% from earlier in the day. Euro zone shares gained 0.7%.
The European Central Bank (ECB) said it plans to cut bond purchases this quarter, then end them at some point in the third quarter, as worries about inflation trumped concerns about a war-related recession.
“Downside risks to growth are increasing and uncertainty around Ukraine and the impact on inflation will continue to weigh on confidence – with markets already pricing a significant degree of rate normalisation, we see the rate outlook from here as much more balanced,” said Steve Ryder, senior portfolio manager for the Aviva (LON:AV) Investors Global Sovereign Bond Fund.
Money markets trimmed their rate hike bets, pricing in about 65 bps of rate hikes by year-end versus 70 bps earlier. [IRPR]
“The ECB still appears to be a central bank that’s in denial – they have a lot of catching up to do with where markets are positioned,” said Craig Erlam, senior market analyst at OANDA.
The bank, which is facing a policy dilemma over record-high inflation and pressures on euro zone growth from the Ukraine war, is lagging most other major central banks, which started raising rates last year.
Battered travel and leisure stocks gained the most, with low-cost airline Wizz Air up 8.7% on signs of encouraging summer bookings.
Birkin bag maker Hermes gained 3.2% after its quarterly sales beat estimates, lifted by strong appetite for luxury accessories.
Sweden’s Ericsson (BS:ERICAs) slumped 5% after it warned of a potential fine by U.S. regulators for its handling of a bribery investigation in Iraq and reported a slide in quarterly earnings.
Worries about rapid rate hikes and a prolonged conflict in Ukraine have investors concerned, putting the STOXX 600 on course to end the holiday-shortened week in the red.
European stock markets will be closed on Friday and Monday on account of Easter holidays.
Among other stocks, Italian airport and motorway operator Atlantia gained 4.7% after the holding company of Italy’s Benetton family and U.S. investment fund Blackstone (NYSE:BX) said they will spend up to 12.7 billion euros ($14 billion) to take the company private.
