Bond prices dropped after the announcement. The Australian share market closed down 1.5%. The selling pushed the S&P 500 back into the red for 2015. The ECB announced a slight cut in one of its key interest rates in an attempt to stimulate lending and help a modest economic recovery. But U.S. stocks were poised to open slightly higher.
Advertisement
Speculation had swirled for weeks that the European Central Bank would further loosen its grip on monetary policy and ramp up a vast bond-buying programme – effectively pumping cash into the economy – to breathe new life into the 19-nation eurozone. “They did indeed have higher expectations than were there and that’s why they reacted like they reacted but that was not our intention”.
European Central Bank (ECB) boss Mario Draghi has said that there’s “no limit” to the arsenal of tools it can deploy to fight stubbornly low inflation. So a lot of investors overbought bonds on expectations that Draghi would over-deliver. “However, his long-awaited early Christmas afternoon left many market participants disappointed like small kids who receive less and smaller presents thn expected on Christmas eve”, said Carsten Brzeski, chief economist for ING DiBa.
Some analysts had been expecting more measures as inflation remains stubbornly below the ECB’s target of just under 2%. Investors had been betting against the euro ahead of the announcement, expecting that more central bank stimulus would put pressure on the currency. The index shed 2.1 percent on Thursday, its worst performance since March 2009.
In Europe, Germany’s DAX slipped 0.6 percent to 10,721.62 and Britain’s FTSE 100 lost 0.2 percent to 6,258.87.
“Draghi caused a great deal of disappointment, dislocation and pain”, said Jeremy Stretch, head of currency strategy at CIBC World Markets.
The British pound rose 1.2% to $1.5144 while the Swiss franc gained 2.4% to Sf0. The Euro has weakened almost seven percent against the dollar since the bank’s last meeting in October.
The biggest event for markets on Friday are U.S. nonfarm payrolls for November, the last major data point to come before the U.S. Federal Reserve meets on December 15-16 and could increase interest rates.
The dollar was at 122.66 yen against 122.61 yen Thursday in NY.
Brent crude futures climbed to $44.09 a barrel, having bounced back from Wednesday’s three-month low of $42.43.
Advertisement
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.8%, extending losses for the week to 0.4%.
