By Sagarika Jaisinghani and Susan Mathew
(Reuters) – European shares ground out gains for the fourth day running on Friday as signs of progress in U.S.-China trade talks propped up shares after a mixed response to stimulus from the European Central Bank a day earlier.
ECB chief Mario Draghi told governments to do more to revive an ailing euro zone economy as he cut rates deeper into negative territory and pledged indefinite monetary stimulus, tying the hands of his successor for years to come and initially driving stock markets higher.
Bank stocks <.SX7E>, which wavered after the decision, rose on Friday, with analysts citing the ECB’s easing of the terms of its long term loans to banks and the introduction of a tiered deposit rate as offsetting the pain of negative rates.
“By exempting a significant chunk of bank deposits from the negative deposit rate and making its offer of long-term liquidity for banks even more generous, the ECB is mitigating the impact of a negative deposit rate on bank balance sheets,” said Florian Hense, an economist at Berenberg.
“By lowering funding costs further, it can make it easier for governments to finance a modest fiscal expansion and nudge countries with some extra fiscal space to actually use it – think Germany.”
Both the pan-European STOXX 600 index <.STOXX> and the euro zone only index <.STOXXE> were higher after an hour’s trade, but the gains were muted and suggested investors may have had their fill after four weeks of gains that have indexes back near levels last seen in July.
Concerns linger about the extent to which the central bank’s stimulus can boost economic growth or stop the euro zone’s biggest economy from slipping into recession. The Ifo institute cut its 2019 growth forecast for Germany on Thursday, predicting a recession in the third quarter.
“On balance, this round of ECB policy easing is seen as generally growth-supportive at the margin, but may not significantly move the growth dial,” said Selena Ling, Head of Strategy and Research at OCBC.
Trade-reliant commodity-linked <.SXPP> and automotive <.SXAP> stocks were boosted by fresh indications that a prolonged trade war between the United States and China was thawing.
After Beijing and Washington made tariff concessions to each other, U.S. President Donald Trump said he could consider an interim trade deal with China ahead of high-level negotiations in October.
The food & beverage index <.SX3P> was the biggest decliner on the STOXX 600 as investors continued to rotate out of defensive stocks.
French conglomerate Bollore Group
Deutsche Bank AG
(Reporting by Sagarika Jaisinghani in Bengaluru; editing by Patrick Graham)