European Stocks Gain Ahead of ECB Meeting and Rate Decision

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Principal Points

• Stocks in Europe continue on their upside trajectory on Thursday
• European investors eye the meeting of ECB Council Members later today

Stock across the board in Europe is higher in the initial hours of the trading session on Thursday as investors expect to hear the latest insight on the economic recovery by the European Central Bank. Dominant benchmark indexes in the old continent are moderately higher, poised to continue the positive performance from recent days.

Upbeat economic data has buoyed European stocks. The eurozone growth data released earlier this week showed the region’s economy contracted by less than previously expected. Data from Eurostat, the EU’s statistics office, showed gross domestic product (GDP) in the eurozone contracted 0.3% on a quarterly basis. The figure was significantly lower than the forecasted 0.6% contraction.

Stocks poised to gain from an economic reopening have been advancing across the European markets. Travel shares, auto shares, and consumer stocks are among the strongest performers in the current quarter. This week alone, shares in travel companies have rallied more than 2%.

The pan-European Stoxx 600 index is steadily marching higher and setting new records as the days go by. Year-to-date, the region-wide index has surged 13.10%, rivalling the gains on the other side of the Atlantic where the S&P500 has advanced 14% and the Dow Jones is higher by 13.97% for the same period.

Economic Recovery Ahead for Europe

Significant and largely anticipated news for European traders is on the agenda today. The European Central Bank is set to release a policy statement and announce whether it will leave the interest rate unchanged. ECB Council Members, expected to meet today, have signaled they would like to keep the current ultra-low interest rate to help the economy get up to speed after the pandemic lockdowns have been widely lifted across the continent.

Policymakers at the central bank of Europe have stated they are not in favor of making any changes to the bond-buying policy that has been buoying the economy and the markets for over a year. In March, the ECB pledged to accelerate asset purchases under its €1.85tn bond-buying scheme. ECB President Christine Lagarde has vowed to maintain “favorable financing conditions” at least until the eurozone economy reached its pre-pandemic levels.

The recovery from the coronavirus pandemic in Europe has been underpinned by a rising rate of vaccinations and the easing of lockdowns and restrictions. In turn, business and social activity have gathered pace which has caused inflation to rise above the central bank’s target of nearly 2%. On that issue, some economists predict that the ECB could begin talks of scaling back some of the monetary stimuli to hold down rising prices.

In May, the eurozone inflation climbed to 2%, surprising the ECB, which has predicted it expects a 2% inflation near the end of the year. However, ECB’s Christine Lagarde downplayed inflation worries, saying she views higher inflation as a temporary phenomenon. May’s inflation data outpaced the ECB target for

the first time since 2018. Policymakers attributed the spike in eurozone prices to one-off effects and predicted it will fade next year.