ECB Rate Cut Boosts European Stocks and These Europe-Focused ETFs in the US

The European Central Bank (ECB) cut its benchmark interest rate Thursday for the first time in five years, boosting European stocks and many Europe-focused exchange-traded funds (ETFs) in the U.S.

The ECB cited progress made on inflation for its decision to cut rates, as inflation has eased significantly in the eurozone since the ECB’s last rate hike in September. Wells Fargo economists project that the ECB will hold its benchmark rate steady in July, but could cut it again in October.

The ECB’s move Thursday followed the Bank of Canada’s decision to cut rates Wednesday, though the U.S. Federal Reserve is not expected to follow at its meeting next week, as U.S. officials have said they need more confidence that U.S. inflation is sustainably approaching their target before cutting rates.

European Stocks Surge, Sending Stoxx 600 to Record High

European stocks surged following the ECB’s rate cut, lifting the Stoxx 600 index to a record high Thursday before closing a little off the high. The Stoxx 600 tracks the performance of 600 large, mid, and small-cap stocks of companies across 17 European countries, and is often cited as a close European alternative to the S&P 500 in the U.S.

American depositary receipts (ADRs) of many of the biggest European companies trading on U.S. exchanges gained Thursday. They include Dutch semiconductor equipment manufacturer ASML (ASML, which is the second-largest component of the Stoxx 60, and Danish drugmaker Novo Nordisk (NVO) with both ADRs advancing 1%. German software giant SAP (SAP) saw its ADRs climb just over 2%.

These Europe-Focused ETFs Got a Boost Too

As European stocks gained, European-focused ETFs in the U.S. got a boost, with the $19 billion Vanguard FTSE Europe ETF (VGK) up 0.4% on the day. The fund’s largest holding is Novo Nordisk at 3.3%, followed by ASML at 2.8%, and Swiss food conglomerate Nestlé (NESN) at 2.2%.

The iShares MSCI Eurozone ETF (EZU) has $8 billion in assets and gained 0.3% Thursday. The fund counts ASML as a major holding as well, along with luxury fashion heavyweight LVMH Moët Hennessy Louis Vuitton (LVMUY).

The $1.7 billion iShares MSCI Europe Financials ETF (EUFN) was up 0.9% Thursday as investors piled into European financial stocks. The fund counts the HSBC (HSBC) and Spain’s Santander (SAN) among its key holdings.