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Market Update

Bank of Japan Negative Interest Move Lifts European Indexes

Author: Lucy Stoeva
Last Update: 1:28 PM ET January 29 2016

4:00 PM Frankfurt – European indexes soared at least 2% after the Bank of Japan surprised the markets by adopting negative interest rates. The banking sector staged a recovery after positive news from Banco de Sabadell in Madrid and rumors about possible mergers in Italy.

European indexes extended weekly gains after the Bank of Japan adopted negative interest rates, while the latest U.S. GDP data in the U.S. suggested future easing of the Fed’s rate policy.

The central bank in Japan in a surprise move introduced a charge of 0.1% for parking excess reserves in an effort to stimulate lending, fight deflation, and stimulate economic growth.

U.S. gross domestic product increased 0.7% in the fourth quarter from a year ago. Growth was slower than the 2% achieved in the previous quarter, according to the U.S. Commerce Department.

Energy complex companies cut more capital spending after oil prices hit 12-year low, while businesses reduced inventories due to the negative impact on exports of the stronger dollar.

In the euro zone, consumer prices grew 0.4% in January from the same period a year ago, and the rate accelerated from December, according to Eurostat.

Nevertheless, inflation remain significantly below the central bank target of 2% and the data is likely to prompt further monetary stimulus.

In France, consumer prices rose 0.2% from a year ago and fell 1% compared with December.

In Spain, the economy grew at an annual rate of 3.5% in the fourth quarter, the National Statistics Institute said.

European banks staged a recovery from the heavy losses in previous sessions after positive news from Banco de Sabadell in Madrid and rumors about possible mergers in Italy.

Oil prices recovered from early losses despite the doubts over the volume cuts by major oil producers.

Brent crude oil futures gained 2.33% to $34.68, while West Texas Intermediate crude oil rose 1.32% to $33.66.

In London, FTSE 100 index rose 152.01, or 2.56%, to 6,083.79 and in Germany, the DAX index added 158.52, or 1.64%, to 9,798.11.

In Paris, the CAC 40 index increased 94.86, or 2.12%, to 4,417.02.

The major European indexes ended the week with gains but are still down 2% to 3% in January as the month brought turmoil on the Chinese equity markets, plunging oil and ore prices, and concerns over global growth.

Banco de Sabadell SA surged 11.24% to €1.65 as the Spanish bank reported growth of 91% in full-year net profit after the acquisition of TSB Banking Group in the U.K.

Fourth-quarter net profit rose to €128.6 million from €7.8 million a year earlier due to the acquisition.

The capital ratio under the new tighter Basel III criteria was 11.4% at the end of December.

In Italy, Popolare di Milano soared 6.87% to €0.75 and Banco Popolare shot up 8.8% to €8.43 on unconfirmed reports that the two banks are in merger talks.

Monte dei Paschi di Siena gained 2.14% to €0.70 after posting an annual profit for the first time in five years, mainly due to changes in derivative trade accounting.

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Sources: Data collected by 123jump.com and Ticker.com from company press releases, filings and corporate websites. Market data: BATS Exchange. Inc