Europe Shares Have Best Day Since 2016 on ECB’s New Bond Package

(Bloomberg) -- European shares gained the most since June 2016 after the region’s central bank unveiled a massive new bond-buying program and President Christine Lagarde signaled there’s “no limit” to the bank’s commitment to the euro.

The Stoxx Europe 600 Index rose 2.9% at the close of trading. Italy’s FTSE MIB climbed 2.3% as the country’s bonds led euro-area gains and the Swiss Market Index gained the most since November 2008. Among sectors, telecom and food-and-drink shares led gains.

European shares rose from their lowest level in almost seven years after the ECB announced a bond-buying plan worth 750 billion euros ($814 billion) on Wednesday evening as it attempts to protect the region from the economic impact of the coronavirus pandemic. The U.S. Federal Reserve said it was launching a program to support money-market mutual funds.

“We are seeing how central banks and governments are making an effort to translate the ‘whatever it takes’ sentence into real measures with effective and convincing steps,” said Juan Luis Garcia Alejo, general director of Andbank Wealth Management Spain. “For investors it’s key that markets stabilize and we get better visibility.”

The U.K.’s FTSE 250 Index closed 1.4% lower, paring losses of as much as 4.9% as the pound rose after the Bank of England cut rates in a second emergency move to combat the economic shock from the virus.

Here’s what other market participants are saying on the ECB decision:

Philippe Waechter, chief economist Ostrum Asset Management

“The logic of this program is simple. The states will spend a huge amount of money to offset the negative effects of the epidemic on the economy. At the same time, interest rates must remain low to avoid a financial shock for both government budgets and corporate finance. The ECB will be faced with new problems in order to neutralize them.”

Alberto Tocchio, chief investment officer at Colombo Wealth SA

Tocchio says he has started buying European stocks, including banks, telecoms, software and gaming shares. “The help of Central Banks and governments is to me crucial now in fighting the economic aspects and the market has been vocal enough about this aspect. It is the first entry point to start investing. The next one and possibly even more convincing will be when the virus curve in the world will start flattening. And importantly I have closed all shorts on indexes. This could be temporary as I would sell again after a technical bounce.”

David Kunz, BX Swiss AG managing director

“The ECB is now following the path of another major central bank and buys until euro zone bonds - including that of Greece. Since then, these have been taboo. This shows determination, but the surprising change in course also shows that the situation must be very tense. The European stock markets are therefore still very unsettled. Monetary policy can probably only offer limited help to markets at this point.”

Robert Greil, chief strategist, Merck Finck

“This is an overdue response given what happend to government bond spreads. The ECB was under pressure to do more as the previous actions were relatively small compared to other central banks. The program is now more flexible and the dimensions are huge given that the central bank aims to buy an additional roughly 83 billion euros on average each month -- four times as much as so far. Still regarding equity markets, we might see the same as before: a positive reaction in the short term, but possibly not enough to stabilize.”

Frederik Hildner, portfolio manager, Salm-Salm & Partner

“Better late than never. After missing expectations last week, the ECB now showed it is aware of the deteriorating market conditions. By now, sentiment has already turned really sour. Inflation expectations are in free fall. Italian government bonds as well as European high-yield spreads blew out. Reassuring markets in panic mode is tough these days.”

Holger Schmieding, Berenberg chief economist

“No monetary, fiscal or regulatory policy response can tackle the health emergency and contain the direct economic fallout from ever-tighter lockdowns. No single such statement may suffice to break the circuit in equity markets. But within the realm of what monetary policy can do, the ECB is now seriously tackling the two key issues facing economic policymakers: easing the liquidity crunch in the economy and helping governments to finance their response to the health emergency.”

Citigroup analysts led by Guillaume Menuet

“The ECB delivered a powerful package by promising to do everything necessary within its mandate. We believe that the guidelines at the end of the statement detailing the new Pandemic Emergency Purchase Programme (PEPP) are themselves more important and powerful than asset purchases themselves. In effect, the ECB is promising more or less to buy everything that governments might issue in order to contain spreads. We characterize this as implicit yield curve or spread control, freeing up fiscal space for governments.”

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