Investors were left somewhat underwhelmed by Mario Draghi’s reaffirmed commitment to extend monetary easing until March 2017 “or beyond” with no clearer sign of this than yesterday’s sharp recovery in the euro.
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Global markets sank Thursday after the European Central Bank announced stimulus plans that came up short of what investors had forecast.
U.S. money market futures hardly budged after the European Central Bank, pricing in about a 75% chance of a rate hike in December and possibly two more rate hikes next year. Equities in the region slumped, with the Euro Stoxx 600 benchmark closing 3.1 percent lower on Thursday.
The Dow Jones tumbled 252 points, or 1.42% to 17,478; the S&P 500 was also down 142% (30 points), at 2,050, while the Nasdaq Composite gave back 85 points (1.66%) at 5,038.
“The ECB should continue to strongly signal its willingness to act and use all the instruments available until its price stability mandate is met”, International Monetary Fund spokesman Gerry Rice said. Credit Suisse Group AG and UBS Group AG started charging some corporate and institutional customers interest on deposits after Switzerland imposed negative interest rates on central bank deposits at the start of the year. Key highlights were robust household spending growth and auto sales while a substantial decrease in debt throughout the year put the USA economy in a strong position to support an interest rate rise for the first time since 2006. Yellen also said the USA economy needs to add fewer than 100,000 jobs a month to cover new entrants to the workforce, perhaps setting an implicit floor for jobs growth that policymakers want to see.
Market expectations were hyped by repeated affirmations from ECB President Mario Draghi and fellow Governing Council members since the October 22 policy session that the bank was ready to do everything to bring euro area inflation to its target of “below, but close to 2 percent”. The common currency last traded at $1.0920, down 0.2% from late United States levels but still near its one-month high of $1.0981 hit on Thursday.
The British pound rose 1.2% to $1.5144 while the Swiss franc gained 2.4% to Sf0.
After moving around ¥122.70 in early Tokyo trading, the dollar dropped below ¥122.50 at one point as Tokyo stocks plummeted on selling by investors who were disappointed at the ECB’s decision not to increase the monthly pace of its asset purchases, contrary to expectations among some market players, market sources said.
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While the Fed is still widely expected to lift rates later this month, Yellen’s comments caused dealers to ease off a recent run-up in the USA unit.
