European Bond Yields Turn Negative After Surprise ECB Rate Cut

Nichole Harper
04 Sep, 2014
New York City

Market indexes in New York and across Europe traded higher after the European Central Bank unexpectedly cut interest rate and signaled willingness to purchase

[R]2:05 PM New York – Market indexes in New York and across Europe traded higher after the European Central Bank unexpectedly cut interest rate and signaled willingness to purchase €700 billion of sovereign bonds. BP PLC may face additional liabilities in billions of dollars after it was found to be liable for oil spill in Gulf of Mexico.[/R]

U.S. stocks traded higher after the European Central Bank unexpectedly trimmed interest rates and offered to buy sovereign bond securities.

The ECB move was widely anticipated but the stimulus step was not expected to happen at least for another month. Bond yields of several euro zone member nations turned negative after the ECB cut deposit rate too.

Tollbooth Index increased 0.5% or 53.24 to 9,566.

S&P 500 index increased 3.62 to 2,004.33 and the Nasdaq Composite added 12.70 to 4,585.24.

U.S. Movers

Mattress Firm Holding Corp ((MFRM)) jumped 11.9% or $6.74 to $63.55 after the specialty retailer reported net sales in second-quarter ending in July climbed 35.5% to $410 million from a year ago period. Comparable store sales growth of 9.7%

Net income in the quarter rose 3.5% to $14.3 million compared to $14.1 million and diluted earnings per share was flat at 41 cents from a same quarter last year.

Separately, today the company agreed to acquire private rival Sleep Train chain, a West Coast bedding specialty retailer for $425 million in cash and stock. The combined company plans to continue to operate both brands.

Ciena Corporation plunged 8.8% or $1.79 to $18.67 after the communications networking equipment maker reported revenues in third-quarter ending in July jumped 12.1% to $603.6 million from a year ago period.

Net in the quarter swung to profit $16.2 million or 15 cents a diluted share compared to a loss of $1.2 million or 1 cent from a same quarter last year.

Ciena forecasted revenue for the fourth-quarter in the range of $570 to $610 million, lower than analysts’ expectations of at least $620 million.

European Markets

European bonds rallied after the European Central Bank unexpectedly cut interest rates and said the bank would buy asset-backed securities and also cut deposit rate.

ECB President Mario Draghi said that the central bank is prepared to purchase additional 700 billion euros in sovereign bonds. The move is likely to face a challenge from German lawmakers and central bankers.

The move was anticipated but the time was not. Bond yields in several euro zone countries fell in the negative zone and Italian and Spanish bond yield dropped to record lows.

German two-year yield declined five basis points to minus 0.07% and central bank also cut deposit rate charged to bank to minus 0.2%. Yield of two-year notes turned negative in Austria, Belgium, Finland, France and Holland. Swiss, outside the euro zone, yields on 2-year note also dropped to negative.

In London trading, FTSE 100 index increased 0.3% or 18.69 to 6,892.27 and in Frankfurt the DAX index jumped 0.6% or 60.60 to 9,687.09.

In Paris, CAC 40 index climbed 1.7% or 76.60 to 4,498.47.

In European corporate news, Bilfinger plunged after the construction company lowered outlook for third time in three months.

Standard Life sold its Canadian business for £2.2 billion and the U.K. based transportation company Go-Ahead said profit surged 55% to £78 million.

Parmalat, Italy based dairy agreed to acquire 11 dairy plants of BRF for €610 million in Brazil.

Asian Markets

Stocks in Tokyo closed lower after broader Topix index reached eight-month high and the Bank of Japan held its policy targets.

The Bank of Japan held its pledge to increase the monetary base at an annual rate between 60 trillion yen to 70 trillion yen, according to a statement released today by the central bank today.

Prime Minister Shinzo Abe appointed new cabinet ministers as widely expected. Abe appointed Yasuhisa Shiozaki as health and labor minister and the reform minded minister is expected to overhaul the $1.2 trillion Government Pension Investment Fund.

The Nikkei 225 Stock Average slipped 52.17 or 0.3% to 15,676.18 and the broader Topix index slid 5.13 to 1,296.39.

The yen declined to close at 104.89 against one U.S. dollar.

The Sensex Index fell 54.01 or 0.2% to close at 27,085.93 The CNX Nifty slid 18.65 to 8,095.95.

Punjab National Bank raised Rs 500 crore through a bond offering. United Spirits fell after net swung to a big loss.