President of European Central Bank Mario Draghi

Domestic stocks twitched 2 percent higher yesterday, while in New York the Standard & Poor’s (S&P) 500 index rose to its highest level in more than four years and European blue chip stocks jumped after the European Central Bank (ECB) announced an aggressive bond-buying programme to stop the spread of the euro zone’s debt crisis.

“It’s more of a sentiment thing, [there is] confidence in the leadership in Europe… and therefore the market can push higher,” said Greg Davies, an equity trader at Cratos Capital.

ECB president Mario Draghi said Europe’s central bank would undertake unlimited, short-dated bond purchases under strict conditions to ease funding pressures on governments that sought help.

Anticipation that ECB action might in time boost the region’s struggling economy aided local commodity prices and helped mining companies to perform strongly, with Anglo American, Harmony Gold and African Rainbow Minerals among the advancers.

Meanwhile, the euro gained slightly after Draghi’s comments and the EuroStoxx 50 index of euro zone blue chip stocks jumped about 3.3 percent to its highest level since early April. On Wall Street, the S&P 500 jumped by almost 1.8 percent to reach its highest level since May 2008.

The ECB plan “is definitely giving more comfort to the market”, said Rex Macey, the chief investment officer of Wilmington Trust Investment Advisors. “It was what the market was looking for, and we can see that the yields on Italian, Spanish and Portuguese bonds have already come down.”

The euro zone economy will probably contract more than previously expected this year, according to new ECB staff forecasts that also raised the bank’s outlook for inflation for 2012/13.

In the debt markets, safe haven US treasury and German Bund prices, which had dipped before the announcement, edged down further, while peripheral euro zone bond prices moved higher.

Commodity prices followed other risk assets higher. Signs of improvement in the US labour market ahead of today’s August US payrolls report were a contributing factor.

Reports yesterday showed US private employers added a stronger-than-expected 201 000 jobs in August, and new claims for jobless benefits fell last week to the lowest level in a month, upbeat signals for a struggling labour market.

However, economists still think the government’s more comprehensive employment report due today will show only modest hiring during August.

The prospect of future central bank buying also ensured successful debt sales by Spain and France. Spain sold e3.5 billion (R36.9bn) of shorter term debt and France sold e7.98bn of five-, 10- and 15-year bonds, with yields at both auctions lower than at previous sales.