Markets Drop Despite Further ECB & German Stimulus

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Thursday, June 4: Markets in London and across Europe found themselves on the back foot at the open, stunting  recent gains as energy majors tracked falling oil prices and investors were apprehensive ahead of an ECB meeting.

By the close oil majors had gained ground whilst an array of financial and industrial stocks weighed heavily on the FTSE 100(-0.64%). Amidst the moves, LSE’s quarterly market shake-up saw Carnival, Easyjet, Meggitt, and Centrica relegated to the FTSE 250 with Avast, Home serve, Kingfisher and GVC Holdings promoted to the FTSE 100. The moves reflect the changing fortunes of sectors during the pandemic, with air travel, tourism and related industries halted due to lockdown restrictions; whilst those promoted to the top tier have benefitted from the population spending more time in their homes. The index changes will come into play from the start of trading on June 22.

The ECB increased the size of its Pandemic Emergency Purchase Programme(PEPP) to €1.35tn from €750bn and extended it until June 2021 at the earliest, with a pledge to reinvest proceeds until at least the end of 2022. The decisions left the ECB’s benchmark Deposit Facility Rate at -0.5%, the Main Refinancing Operations at zero whilst the rate on overnight liquidity was fixed at 0.25%.

In concert with the monetary action from the ECB, Germany’s coalition government announced a €130bn stimulus package cutting tax and doling out cash after 21 hours of negotiation. Germany is headed for its worst recession in 70 years with GDP expected to shrink 6.3% this year. VAT will be cut from 19% to 16% from the beginning of July until the end of the year, and families will receive a cash transfer of €300 for each child. In addition, those who buy electric cars will see the government rebate doubled to €6,000, and further “bridging help” of €25bn will be deployed from June until August on top of the €1.1tn rescue package agreed in March.

European markets were lower at the close, with the FTSE 100 -0.64%, the CAC 40 -0.21% and the DAX 30 -0.45%.

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