Euro zone banks rise as ECB slows bond purchases

Euro zone stocks bounced off session lows and banking shares climbed on Thursday after the European Central Bank signalled it will only slightly reduce its emergency bond purchases over the coming quarter, in line with expectations.

After falling as much as 0.9% in morning trade, the index clawed back losses and was last down 0.1% while the euro extended gains.

Rate-sensitive banking stocks in the bloc turned positive and were last up 0.3%.

The ECB, while taking a token step towards unwinding the emergency aid, gave no signal of its next policy move, including how it might dismantle the 1.85 trillion euro Pandemic Emergency Purchase Programme (PEPP) which has kept borrowing costs low for governments and businesses.

“I think it has been largely priced by the market,” AXA Group chief economist Gilles Moec said, adding that all eyes will be on ECB President Christine Lagarde’s news conference, which begins at 1230 GMT.

Moec said the focus was now on whether Lagarde would talk about a potential end date for the PEPP programme, which would be a true tapering. “I think the council is far too divided for her to start deliberating on that.”

The continent-wide STOXX 600 index was down 0.1%, coming off early lows. UK’s FTSE 100 led losses among regional indexes with a 0.9% drop.

British airline easyJet (LON:EZJ) tumbled 10.2% after it rejected a takeover approach from Wizz Air, opting instead to raise $1.7 billion from shareholders and go it alone in an industry battling to recover from the pandemic

Rival British Airways-owner IAG (LON:ICAG) fell 3.2%, while Wizz Air dropped 1.2%, dragging the wider travel & leisure index down 0.8%.

After hitting record highs in mid-August, the STOXX 600 has traded below those levels as fears about the fast-spreading Delta coronavirus variant, slowing recovery, and the withdrawal of stimulus by major central banks worried investors.

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With Chinese gaming stocks coming under pressure from fresh regulatory scrutiny, Dutch investor Prosus, which has a stake in Chinese tech giant Tencent (HK:0700), fell 5.3%.

European gaming stocks including France’s Ubisoft, Ebracer and Rovio fell between 1% and 4%.