Eurozone growth revised up to 2-year high

09 June, 2017, 08:55 | Author: Elaine Woods
  • Traders work on the floor of the NYSE in New York

MILAN, June 8 (Reuters) - European shares steadied on Thursday helped by stronger bank stocks and a bounce in oil prices but caution dominated as Britons vote in a general election and the European Central Bank holds its policy meeting. The euro and sterling held steady while the dollar index wallowed near seven-month lows.

The bank took a tiny step toward an eventual exit from the stimulus by dropping wording in its statement saying it could lower interest rates even further.

Announcing small upgrades in its growth forecasts through to 2019, ECB President Mario Draghi told a news conference the bank no longer saw risks to growth as being skewed to the downside.

After years of crises and stagnation, the surprise upturn in the euro zone economy has pushed the issue of reining in the ECB's €60billion-a-month stimulus up the agenda.

That came after the European Union statistics agency Eurostat earlier revised up its estimate of first quarter growth to its fastest rate in two years, saying the economy of the 19-country euro zone expanded by 0.6 percent quarter-on-quarter and by 1.9 percent year-on-year.

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The ECB is expected to leave policy unchanged later today as inflation remains below its target despite stronger economic growth in the euro zone.

But the bank's announcement Thursday reiterated that its stimulus in the form of monthly bond purchases could be stepped up if the economic outlook worsens. The 60 billion euros ($67 billion) per month in bond purchases are to run at least through the end of the year. The measure pumps newly printed money into the economy in an effort to raise inflation toward the bank's goal of just under 2 percent considered best for the economy. The first-quarter rate is the highest for two years and backs up a raft of indicators showing that the recovery across the region has picked up momentum.

Shares of Alibaba Group Holding were up 11.5 percent at $140.08 in premarket trading after the company said it expects revenue growth of 45-49 percent in the 2018 fiscal year. The financial markets have remained cautious over the recent slowdown in inflation across the Eurozone, which is fuelling some speculations that the central bank's easy monetary policy still has a long way to go. While few expect that to happen, the words underline that the bank is not yet willing to call time on the stimulus program.

Analysts think the bond purchases will be tapered next year, but the bank has moved gingerly in indicating when it might be ready to announce a schedule for reducing and then ending them.

The interest rate for the main refinancing operations was kept at 0.0%, alongside a rate of 0.25% on the marginal lending facility while the deposit rate was unchanged at -0.40%. That is in effect a tax aimed at pushing them to lend the money instead of hoard it.

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