June 18, 2019 / 7:28 AM / 6 months ago

European stocks at six-week high as ECB's Draghi hints at stimulus

(Reuters) - European Central Bank chief Mario Draghi’s dovish remarks sent European stocks to six-week highs on Tuesday while news that the United States and China would resume trade talks at the G20 summit also boosted sentiment.

Draghi hinted at the possibility of new rate cuts or asset purchases if inflation did not head back to its targets. His comments weakened the euro, lowered European bond yields to fresh lows and helped stock markets climb globally.

The pan-European STOXX 600 index closed 1.8% higher, after having fallen as much as 0.5% earlier in the session. It posted its best day in five months.

Italy’s FTMIB, France’s CAC 40 and Germany’s DAX climbed more than 2% while most others ended over 1% higher.

The eurozone stocks were particularly boosted, up 2% as exporters in the eurozone benefited from a weakness in the single currency.

News that Washington and Beijing would resume trade talks after a long lull in order to prepare for a meeting later this month pushed up trade-sensitive auto shares and basic-resources stocks.

Utilities, which is among the sectors considered as bond-proxies, racked up a 2.3% gain.

“Judging by the tone of Draghi’s speech, it would probably take only a small downward deviation in growth and core inflation, and/or an outsized drop in survey-based inflation expectations, for the ECB to take action,” said Florian Hense, European economist at Berenberg in London.

Meanwhile, the newsflow from European corporates continues to point to a euro zone economy struggling to get back off the ground after a decade of monetary efforts to reboot growth.

German chipmaker Siltronic tumbled 7.8% after issuing its second profit warning in two months, which came hot on the heels of U.S. chipmaker Broadcom’s shock statement last week that trade issues would knock $2 billion off 2019 sales.

“The series of warnings in the chip business is further proof that the trade war is a key risk in the background,” said Simona Gambarini, a markets economist at Capital Economics.

Concerns over the protracted U.S.-China trade war drove European stocks 6% lower in May, their worst performance in more than two years, and spurred bets that central banks worldwide would turn more accommodative.

Other European chipmakers STMicroelectronics, ASM International and ASML Holding, which were pressured by Siltronic’s results earlier, recovered losses to trade higher, pinning hopes on a positive outcome from the G20 summit.

The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, June 18, 2019. REUTERS/Staff

The rising hopes of a more accommodative stance by the ECB and the U.S. Federal Reserve has helped the STOXX 600 gain more than 4% so far this month.

All eyes will now shift to the U.S. central bank which is expected to leave borrowing costs unchanged at a two-day policy meeting starting on Tuesday but may lay the groundwork for a rate cut this year.

Danish medical device maker Ambu plunged 14.2% after its new chief executive announced cuts to the company’s growth prospects for this year and next.

Reporting by Amy Caren Daniel, Medha Singh and Susan Mathew in Bengaluru; editing by Patrick Graham and Ken Ferris

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