Stock markets in the Euro union – the world economy’s single largest currency zone – turned a 1.3% gain into a 2.5% plunge for the day as the Euro jumped more than 3 cents against the Dollar on the FX market, hitting 2-week highs 2.5% above a new 9-month low set just before today’s European Central Bank announcement in Frankfurt.
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But the main bank deposit rate has been cut further into negative territory, from -0.2 to -0.3 percent, charging banks more for parking cash with the central bank in a bid to boost lending.
At his traditional post-meeting news conference, ECB President Mario Draghi announced that the bank would also beef up its controversial bond purchase program, known as QE or quantitative easing.
“The markets had already been pricing in a deposit rate cut, and some investors had actually been looking for a bigger cut – maybe of 15 to 20 basis points”, said Hantec Markets’ analyst Richard Perry.
The ECB buys mainly euro-denominated government bonds.
Meanwhile, US Federal Reserve boss Janet Yellen said yesterday that the Fed remained wary of a interest rate rise because of concerns about a strong dollar and the divergence between its monetary policy and those of other central banks.
That took the dollar’s index against a basket of six major currencies down to a one-month low of 97.591 overnight, before bouncing back to 97.990 on Friday.
The spot market opened at 6.3867 per dollar and was last changing hands at 6.3973. However the euro did extend gains and surged 2.4 per cent to $1.086 per cent.
While November payrolls might not be as impressive as the 271,000 new jobs created in October, economists still expect a solid addition of 200,000 jobs for last month. Hong Kong’s Hang Seng shed 1.1 percent to 22,179.64 and the Shanghai Composite Index in mainland China dropped 0.8 percent to 3,557.71.
Looking at gold, “Perhaps the only bullish variable is that everyone is mostly bearish”, said a note overnight from U.S. brokers INTL FCStone, “likely making the markets ripe for a massive short-covering rally”.
The cut was smaller than the market had been anticipating, however, provoking a fall in global equity markets, with London taking its shares of the licks, with the Footsie plunging 146 points.
Brent crude futures climbed to $44.09 per barrel, having bounced back from Wednesday’s three-month low of $42.43.
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The expected rise in United States rates and slowing Chinese demand failed to dent copper, which looked like snapping a seven-week losing streak.
