The new European Central Bank (ECB) headquarters is pictured in Frankfurt Jan. 21.Kai Pfaffenbach/Reuters
The Toronto stock market was higher, but U.S. markets were mixed, after the European Central Bank announced a major stimulus program aimed at strengthening a weak economic recovery and stopping the euro zone from slipping into a deflationary spiral.
The S&P/TSX composite index ran up 80.30 points to 14,640.72 after ECB president Mario Draghi said the bank is launching a program of quantitative easing that will involve spending 60 billion euros a month to buy investment grade sovereign bonds. The announcement came after the ECB kept benchmark rates unchanged at record lows.
There had been hopes Draghi would announce such a measure, which is aimed at getting euro zone inflation up to the ECB target of two per cent. He added that the program will start in March and continue through September 2016.
But Draghi indicated the program is basically open ended until inflation is back on track.
"Markets were expecting big and this sounds like a pretty big program, so that's good news," Karyn Cavanaugh, the New York-based senior market strategist at Voya Investment Management LLC, said by phone. "We were all expecting it and finally we got what we were looking for."
The Canadian dollar was lower after the ECB announcement, adding to the 1.5 cent tumble racked up Wednesday following the Bank of Canada's surprise quarter-point rate cut, which took a key lending rate down to 0.75 per cent. The currency lost 0.26 of a cent to 80.81 cents US on Thursday.
The rate cut was a big positive for the TSX, which jumped 252 points Wednesday as energy stocks in particular responded positively to the Bank of Canada's move.
New York markets were in the red as the Dow Jones industrials fell 3.15 points to 17,551.13, the Nasdaq edged up 0.91 points to 4,668.33 and the S&P 500 index added 2.95 points to 2,035.07.
The TSX energy sector gained 0.85 per cent with oil prices lower ahead of the mid-morning release of U.S. supply data. The March oil contract in New York rose 40 cents to US$48.18 a barrel.
The gold sector was up a slight 0.1 per cent while the February gold contract ran ahead $9.90 to US$1,303.60 an ounce.
The base metals sector was the only decliner, down 0.2 per cent as th March copper contact was three cents lower at US$2.59 a pound.
There was also a major acquisition in the financial sector as the Royal Bank moved to grow its wealth management business in the U.S. The bank announced an agreement to buy Los Angeles-based City National Corp. in a friendly cash and stock deal worth US$5.4 billion. RBC shares fell $2.46 to $74.15.
Other stocks to watch Thursday included Canadian Pacific Railway, which posted quarterly net income of $451 million, or $2.63 per share, up from $82 million, or 47 cents a share, a year earlier. Results a year ago were affected by an impairment charge of $435 million. Adjusted earnings were $2.68 per share, 11 cents ahead of estimates. Revenue of $1.76 billion beat forecasts of $1.732 billion and its shares rose $4.81 to $231.77.
Iamgold Corp. said it expects lower costs this year than 2014, but also cut its capital spending plan by about 30 per cent compared with last year and said its production may be lower. Its shares added two cents to $3.94.
And fertilizer company Agrium Inc. has increased its target dividend payout ratio to 40 to 50 per cent of free cash flow, up from a range of 25 to 35 per cent and its shares were ahead $3.13 to $128.95.
"This is a step in the right direction," John Fox, director of research at Fenimore Asset Management in Cobleskill, New York, said in a phone interview. "It had been widely anticipated that they were going to do something, so they're not surprising the market, but they still gave investors something positive."
QE has been long in the making. The ECB took a step in that direction in 2010 when it bought the bonds of debt-strapped countries such as Greece. That was opposed by then-Bundesbank President Axel Weber, opening a rift between the ECB and the German central bank whose uncompromising stance on inflation inspired its design.
In recent weeks, current Bundesbank President Jens Weidmann and his former deputy Sabine Lautenschlaeger, now on the ECB's Executive Board, have been the loudest voices against more stimulus. Their argument: The slump in oil prices that's damping inflation will bolster the economy as previously announced measures begin to take effect.
A near-stagnant economy and the risk of deflation forced Draghi's hand six years after the Federal Reserve took a similar step to inject cash into the U.S. The 67-year-old Italian's gamble is that the benefits of quantitative easing outweigh the threat of a backlash in Germany and that the ECB ends up bailing out profligate, reform-wary governments.
The ECB's shift exacerbates an emerging global divergence in monetary policy. While the Fed is now considering when to tighten credit, central banks in Denmark, Turkey, India, Canada and Peru all announced surprise rate cuts in the past week. The Swiss National Bank shocked investors by dropping a cap on the franc.
Economic data on Thursday showed more Americans than forecast filed applications for unemployment benefits last week, a sign of lingering holiday turnover.
With files from Bloomberg News