London - European equities bounced back on Friday, tracking a rally in Asia after the Bank of Japan stunned the markets by voting narrowly to introduce negative interest rates in a bid to revive inflation.
Japan's central bank said it would charge 0.1 percent for excess reserves parked with the institution, an aggressive deflation-fighting policy pioneered by the European Central Bank.
“It has become clear that stock markets cannot stand on their own feet. As long as the economy is shaky and the world is burdened with high debt, central banks and their money printing machines are a necessary evil to keep up the markets,” Koen De Leus, senior economist at KBC in Brussels, said.
Deflation discourages consumers from buying because they begin to expect prices to fall even further. Japan has been wrestling with the problem since the 1990s, and its central bank is concerned about the time it is taking to reverse expectations of price falls.
“The signal that the Bank of Japan gives reminds us that central banks will continue to play their role of fighting deflation,” said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets. “These actions typically drive up risky assets.”
The pan-European FTSEurofirst 300 index rose 1.1 percent by 08h56 GMT after having fallen 1.7 percent in the previous session.
Among top sectoral movers, the European banking index rose 1.7 percent after some encouraging earnings reports, while energy stocks, up 1.6 percent, were supported by a rise in crude oil prices.
Spanish lender Banco Sabadell gained 5 percent after posting a 91 percent jump in full-year net profit, boosted by the acquisition of British peer TSB which more than offset rising provisions against bad loans in the fourth quarter.
Italy's Banca Monte dei Paschi di Siena rose after posting an annual profit for the first time in five years, helped by a change in the way it booked a controversial derivative trade, and after its chief executive told a newspaper that a tie-up with rival UBI Banca could make sense.
JCDecaux shares surged 6 percent, the top FTSEurofirst 300 gainer, after the French outdoor advertising company reported higher revenues.
However, Norwegian fertiliser producer Yara fell 2.5 percent after posting fourth-quarter core profit below expectations, hit by lower sales and an impairment related to its plants in France and Trinidad.
REUTERS