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UPDATE 2-Lagarde ECB pick triggers euro-zone share rally as investors seek yield


Reuters
Updated: 03-07-2019 16:33 IST
UPDATE 2-Lagarde ECB pick triggers euro-zone share rally as investors seek yield

"While the IMF chief is considered a qualified candidate, that won't necessarily make Europe a more attractive place to invest over a tactical horizon," Image Credit: Pixabay

Euro-zone stocks rallied to their highest in more than a year on Wednesday, as investors piled into companies with big dividends on expectations that European Central Bank chief nominee Christine Lagarde will maintain the bank's dovish fiscal policy. Defensive sectors from food & beverage, utilities, healthcare to real estate sectors powered the market higher as investors searched for yield amid expectations that interest rates will remain ultra-low for longer with Lagarde at the helm.

The blue-chip euro-zone STOXX index was up 0.8% at 1037 GMT, its highest level since mid-June last year, while the pan European STOXX 600 was up 0.8% after hitting its highest since end-July last year. Healthcare shot to multi-year highs and food & beverage hit all-time highs, real estate, which benefits from low rates, rose more than 1.1%.

The benchmark STOXX 600 index has risen 20% from a low hit December last year. If confirmed in the post, Lagarde will succeed Mario Draghi when his term expires at the end of October, the first ECB president without direct, active monetary policy experience.

The news reassured investors that she will maintain the central bank's dovish stance. "The main concern for markets had been an interruption of the return to accommodative policy Draghi has outlined for September, but a continuation and even expansion of easing is possible when Lagarde assumes control in October," said David Zahn, head of European fixed income at Franklin Templeton.

"The appointment has reconfirmed the idea that the ECB will support the market over the short-to-mid-term at least." Euro-zone government bond yields fell to fresh record lows. Bank stocks, which tend to suffer in a low-interest rate environment, rose 0.4%, underperforming the broader index.

Some investors cautioned that her appointment did not change their view that the region would continue to struggle with weak growth, continued tensions between Rome and Brussels over budget deficits and worries about Britain's exit from the bloc. "While the IMF chief is considered a qualified candidate, that won't necessarily make Europe a more attractive place to invest over a tactical horizon," said Mark Haefele, chief investment officer at UBS Global Wealth Management.

European markets continued their strong run from June after the ECB and the U.S. central bank signalled more accommodative measures to counter the impact of a protracted U.S.-China trade war. The rally earlier this week was mainly on optimism from the news over the weekend that the United States and China had restarted talks to resolve a trade dispute that has roiled financial markets for at least a year.

Putting a damper on some chip stocks was news that the Commerce Department's enforcement staff was told this week that China's Huawei should still be treated as blacklisted, a stark difference from U.S. President Donald Trump's statement over the weekend vowing to ease a ban on sales to the firm. European chipmakers STMicroelectronics, Siltronic, and Infineon fell between 0.3% and 2.7% on the news.

The biggest gainer on the STOXX 600 was Britain's biggest sportswear retailer JD Sports, which rose 3.1%, after the company said it was on track to at least meet market expectations for annual profit.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)