European stocks firmer after ECB and China rate cuts.
European equity markets have took on a firmer footing this morning following an expected rate cut by both the European Central Bank (ECB) and a surprise interest rate cut by the Peoples Bank of China (PBoC).
In a move widely expected by the market, the ECB today cut its main policy rate by 25 basis points (bps) to 0.75%, a historical low, while at the same time reducing its deposit rate to zero. The deposit rate is that which the ECB pays banks for their overnight deposits, and this move shows strong attempts by the central bank to help boost economic growth and promote inter-bank lending.
At the same time the PBoC cut its interest rates for the second time in less than a month, reducing deposit rates by 25bps to 3%, and its one-year lending rate by 31bps to 6%. Combined with the announcement by the Bank of England (BoE) that they will be increasing their asset buyback program, the joint effect of these stimulus measures has been helping European stocks since their announcement. With this, the German DAX (INDEX: ^GDAXI) is seeing one of the best performances, up almost 0.9%.
Germany's Volkswagen (OTC: VLKAY.PK) is seeing a lot of headlines this morning, up 6% after it agreed to buy the remaining 50.1% stake in Porsche's automotive business that it does not currently own. The deal is worth around of €3.9 billion, and brings to an end the seven-year debacle between the two companies. The move comes two years sooner than expected after VW was able to reach an agreement with the German tax authority, an announcement that was made last night.
Also on the corporate front, news today that the UK's GNK is to buy Volvo's (OTC: VOLVY.PK) aerospace unit, which predominantly focuses on aircraft engines, for £633 million, has been leading both companies to outperform. The British firm said it has undertaken the deal to narrow the gap to rivals such as Safran, and intends to raise £140 million in a share sale to part-fund the deal. Volvo has been trading around 2.5% higher today.
In France, the national competition regulator announced that they have reached an agreement with banks to end a probe into interbank commissions on electronic withdrawals and automatic payments. Boosted further by the ECB's efforts to promote interbank lending in eurozone countries, the sector is outperforming in Paris, with Societe Generale (OTC: SCGLY.PK) leading the way.
On the other side of the market, weakness in some of the more industrial commodities is having a negative impact on related sectors in the stock market, with steelmaker ArcelorMittal (NYSE: MT.US) leading losses after trade union officials reported yesterday that the company will be cutting administrative staff in an attempt to reduce costs by 25%.
The officials said they will be raising the issue with ArcelorMittal management at a meeting in Luxembourg next week, and concerns are now rising that this will lead to labour troubles for the company. Arcelor's shares have been trading down over 2.5%.
As always, this morning's European news saw some winners and losers -- and perhaps some European buying opportunities. Indeed, legendary investor Warren Buffett has recently spent more than $1 billion buying the stock of a prominent European large-cap.
If you want to know why Buffett has bought into Europe, this special Motley Fool report -- "The One European Share Warren Buffett Loves" -- reveals everything, including the price Buffett paid. You can download the report today for free. But hurry -- the report is available for a limited time only.
The Motley Fool is helping Europe invest. Better. And with the eurozone economy so uncertain, we're urging everyone to read "10 Steps To Making A Million In The Market" -- this report may transform your wealth. Click here now to request your free, no-obligation copy.
Further Motley Fool investment opportunities:
> Karl does not own any share mentioned in this article.