Global markets sank Thursday after the European Central Bank announced stimulus plans that were short of what investors had forecast. Hong Kong’s Hang Seng shed 0.8 percent to 22,235.89 and the Shanghai Composite Index in mainland China dropped 1.7 percent to 3,524.99. France’s CAC-40 index lost 3.6 per cent and the U.K.’s FTSE lost 2.3 per cent.
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The S&P 500 closed down about 1.4 percent, falling back into negative territory for the year. Germany’s DAX plunged 3.6 percent, its biggest drop since September.
“We stand on the brink of another extraordinary central bank policy easing today, from the ECB of course, which has been increasingly priced into markets, meaning amongst other things that you have to pay heavily indebted governments even more for the right to lend to them at the front end of the curve”, Deutsche Bank said.
The ECB move caused a spike in the euro, catching investors by surprise and forcing them to shift positions in most asset classes.
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. It also posted handsome gains on sterling and commodity currencies such as the Australian dollar.
The euro was mostly unchanged against the dollar at $1.0870, after surging on Thursday.
“The stock market, along with the exchange rate, is likely to fluctuate within a given range rather than dip further”.
The yield on the 10-year Treasury note jumped to 2.32 percent, up sharply from 2.18 percent the day before.
The yield on 10-year German Bunds surged about 20 basis points to 0.666 percent from 0.474 percent on Wednesday, the biggest jump since late April.
Janet Yellen continues to prime markets for December interest rate rise as comments during yesterday’s Joint Economic Committee hearing.
USA nonfarm payrolls increased 211,000 last month, the Labor Department said on Friday.
That would be a fairly low bar given that economists’ median forecast was 200,000, when even the most conservative forecast in a Reuters poll of more than 100 economists was 150,000.
Constancio said that he believed the “fault lies with the markets” after Thursday’s heavy sell-off in equities, and rejected the view that the European Central Bank had lost some credibility over the guidance that it gave before the announcements.
Crude oil prices extended gains on Friday, as the dollar slumped against the euro, although market focus is fixed on an OPEC meeting in Vienna where the group is expected to reiterate its high output strategy.
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The expected rise in USA rates and slowing Chinese demand failed to dent copper, which looked like snapping a seven-week losing streak.
