Europe open: Stocks jump as BoJ surprises markets

Stocks in Europe took their cue from a strong performance in Asia, after the Bank of Japan surprised markets by adopting negative interest rates for the first time ever, as it looks to drive inflation to 2%.

At 0845 GMT, the benchmark Stoxx Europe 600 index was up 1.2%, Germany’s DAX was up 1.1% and France’s CAC 40 was 1.3% higher.

“European equities are staging an early rebound this morning moving to the upside together with their Asian peers on the back of a surprised cut in interest rates by the Bank of Japan,” said Markus Huber, senior analyst at Peregrine & Black.

“In light of Japan struggling to meet its growth and inflation targets quite a few expected some action by the BOJ, however moving rates in negative territory came rather as a surprise for many.”

The BoJ said on Friday that it will apply a negative 0.1% to excess reserves financial institutions place at the bank with effect from 16 February.

The bank voted five to four in favour of the decision, which it attributed to declining oil prices and the slowdown in China.

At the same time, the Bank left its bond-buying programme and exchange-traded funds unchanged.

"Recently, however, global financial markets have been volatile against the backdrop of the further decline in crude oil prices and uncertainty such as over future developments in emerging and commodity-exporting economies, particularly the Chinese economy," the BOJ said in a statement.

"For these reasons, there is an increasing risk that an improvement in the business confidence of Japanese firms and conversion of the deflationary mindset might be delayed and that the underlying trend in inflation might be negatively affected."

The BoJ added that it would cut interest rates further into negative territory if this was deemed necessary.

Markets in Asia reacted positively to the news, with Japan’s Nikkei ending 2.8% firmer, the Hang Seng up 2.5% and China’s Shanghai Composite up 3.1%.

In corporate news, Sky was on the front foot after its first half revenues met market expectations and the broadcaster announced the appointment of James Murdoch as chairman.

British Land was also in the black after it signed another tenant to the London ‘Cheesegrater’.

Shares in French outdoor advertising company JCDecaux rallied after well-received fourth quarter numbers.

Banca Monte dei Paschi di Siena was higher after the bank’s chief executive told an Italian newspaper a tie-up with UBI Banca might make sense.

On the downside, Yara was weaker after the fertiliser producer’s fourth-quarter results missed analysts’ expectations.

On the macroeconomic front, data released by Destatis showed German retail sales fell 0.2% in December in real terms from a revised 0.4% increase the previous month, missing economists’ expectations for a 0.5% rise.

Retail sales were up 1.5% in real terms in the year to the end of December but this was also short of economists’ forecasts for a 2% increase.

Still to come, investors will be looking to the first release of fourth quarter US GDP at 1330 GMT.