Europe markets pare gains as ECB rate pledge falls short of hopes

2

European stock markets pared gains Thursday, after the European Central Bank said it would keep key interest rates unchanged through the first half of 2020, disappointing those who wanted a more dovish push.

How are markets performing?

The pound rose to $1.2706, after nudging 0.4% higher Wednesday. The climbed 0.4% to $1.1264.

What’s moving the markets?

The European Central Bank on Thursday left interest rates unchanged, and extended the period it expects rates to remain on hold through at least the first half of 2020. The ECB had previously indicated rates would remain on hold through the end of 2019. It also announced the terms of its third round of targeted longer-term refinancing operations.

At a press conference, ECB President Mario Draghi said the central bank could cut interest rates, if needed, but markets still fell and the euro rallied. Data ahead of that showed German factory orders for April beat economists’ expectations, but were down from the previous month.

“Instead of taking a rate increase off the table, it instead decided to simply push the first hike further out. Head still in the sand. Markets are still pricing for a cut before then,” said Neil Wilson, chief market analyst at Markets.com, in a note to clients.

Read: 3 things to watch for when ECB meets Thursday

U.S. President Donald Trump tweeted an update on discussions in Washington, D.C. with representatives of the Mexican government, saying that “progress is being made, but not nearly enough”. The U.S. will levy tariffs on Mexico starting Monday, barring a breakthrough.

Ratings agency Fitch downgraded Mexico, citing state oil company Pemex’s credit troubles as well as possible tariff action by the U.S. The agency changed the outlook for Mexico from Negative to Stable.

The International Monetary Fund revised down its GDP expectations for China to 6.2% for 2019 and 6% for 2020, reflecting the potential impact of trade tensions. Managing Director Christine Lagarde told Reuters that the international body’s base case was that tariffs might dampen growth but would not tip the global economy into recession.

Which stocks are active?

Fiat Chrysler Automobiles NV withdrew its merger proposal from Renault SA citing a lack of backing from the French government. Wall Street Journal sources said the sticking point was that Nissan, Renault’s partner in a long-term alliance, had not yet given its backing. Renault stock sank 6%, while Fiat Chrysler rose 0.5%.

Rolls-Royce Holdings PLC shares moved 1.5% higher on news its pensions unit had struck a £4.6 billion ($5.8 billion) annuity deal with Legal & General Group PLC the insurance company.