ECB Holds Off On Rate Hikes! Grab 5 Top European Stocks Now

 | Jun 14, 2018 09:14PM ET

The European Central Bank (ECB) indicated that it will keep interest rates low for at least another year. The central bank’s unexpected dovish stance on interest rates overshadowed its aim to wrap up its crisis era quantitative easing (QE) program by the end of this year.

The euro cratered against the dollar as there is no sign of a rate hike in the near future, which in turn helped European stocks scale north. Thus, investing in such stocks now doesn’t seem to be a bad proposition.

ECB to Keep Rates at Record Low Until Summer 2019

The ECB has laid down its plan to halt its monthly bond purchasing program by the end of this year. Riga, Latvia, the ECB’s Governing Council said that the central bank will continue to purchase bonds worth €30 billion ($35.2 billion) a month through the end of September. And if the medium-term inflation matches the ECB’s outlook, it will reduce bond purchases to €15 billion a month through the end of December and eventually end it.

Concurrently, the ECB has vowed to keep interest rates at ultralow levels “at least through the summer of 2019 and in any case for as long as necessary to ensure that the evolution of inflation remains aligned with the current expectations of a sustained adjustment path”, a move that market pundits described as dovish.

The ECB has kept its main lending rate unchanged at 0%, while the deposit rate on funds parked overnight at the central bank is at minus 0.4%. ECB president Mario Draghi did mention that the policy makers haven’t discussed when to raise rates. Rate hikes, in fact, have been put on hold due to rise in global risks to the economic outlook, including trade protectionism. Needless to say that the United States is presently pitted against the rest of the world on trade-related issues. President Trump has already approved a plan to impose tariffs worth tens of billions of dollars on Chinese goods. He is also planning to impose similar tariffs on the European Union.

Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics, noted that “Mr. Draghi is putting markets on notice; ‘don’t go overboard and start pricing in rate hikes immediately after QE is ending.” He added that “it is also a signal that markets should not expect further changes in the guidance on rates until Q2 next year.”

Euro Takes a Beating, European Stocks Log Best Day in 2 Months

ECB’ rate decision made the euro face its steepest one-day drop against the dollar since June 2016, while the dollar climbed to a two-week high. According to FactSet, the euro rose to $1.1852 versus the dollar before falling back to 1.1640, reflecting a drop of 1.3%. After all, a lower interest rate diminishes the value of the country’s currency compared to nations offering higher rates. Drop in interest rates fails to attract foreign investment, lowering demand for the home country’s currency.

A weaker euro, in the meanwhile, is good news for European stocks. The pan-European FTSEurofirst 300 index rose 1.4% following ECB’s rate decision, while the Stoxx Europe 600 gained as much as 0.4% after losing 0.7% earlier in the trading session.