The stock market is on track for a lower open after the European Central Bank opted to maintain its monetary policy stance and ECB President Draghi said no additional stimulus measures are needed at this time; S&P -0.2%, Dow and Nasdaq -0.3%.
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“With macro data still weak and high market expectations after a dovish July meeting, we believe a commitment to continuing QE after March 2017 is the least markets expect”, analysts at Bank of America Merrill Lynch said in a note.
However, in Europe, there were suggestions in PMI surveys released this month that a “Brexit impact” may be starting to creep into the eurozone economy.
He added that eurozone governments that have the capacity to spend more on investments in infrastructure should do so.
September’s monetary policy announcement will also be accompanied by the closely watched, updated European Central Bank staff economic forecasts with market expectations of a downgraded growth outlook. In June, they forecast inflation of 1.3 percent for next year and 1.6 percent in 2018.
Almost all analysts polled by Reuters expect rates to remain unchanged on Thursday and most predict that they have already bottomed out. Fed Chair Janet Yellen has said the case has strengthened for more rate increases on top of a quarter point hike made from near zero in December.
US stocks are falling in midday trading, following European indexes lower after the European Central Bank didn’t expand or extend its stimulus measures.
Easiest options could include buying bonds yielding less than the bank’s -0.4 percent deposit rate, extending the maturity range of eligible bonds to 30 years from 20 years and buying an even bigger portion of a certain bond issue.
“Negative interest rates will certainly have consequences and challenges for the banks of which we have to be aware”, the ECB president said.
More monetary stimulus won’t raise the level of potential growth in the absence of economic reforms by governments, he argued. But so far there has been little hard data to show that’s happening.
Draghi unveiled a modest downgrade to the ECB’s euro zone growth forecasts and warned of downside risks, including uncertainty relating to Britain’s decision to exit the European Union.
The possible bond shortages have spurred chatter the central bank will need to embrace more assets in its buying basket, possibly including stocks.
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The central bank also reaffirmed that it would continue its quantitative easing programme through to March 2017. Declines in similar-maturity Spanish and Italian bonds pared throughout the day as the initial knee-jerk reaction faded, while the euro, which earlier climbed as much as 0.8 percent was 0.3 percent higher at $1.1271 at 5:06 p.m. Frankfurt time. Please see our terms of service for more information. AP material published by LongIsland.com, is done so with explicit permission. This includes the preparation of derivative works of, or the incorporation of such content into other works.
