Global stocks hit, euro shines after ECB stimulus misses expectations

4 Dec 2015 | Author: | No comments yet »

Asian Stocks Extend Global Rout as Draghi Disappoints Investors.

The MSCI Asia Pacific Index dropped 0.7 percent to 132.63 as of 9:03 a.m. in Tokyo, with 496 stocks retreating while just 17 rose. The euro surged to its biggest one-day percentage gain against the dollar in over six years after the European Central Bank’s latest steps to boost eurozone growth disappointed investors who had bet heavily on an aggressive expansion of its easy-money policies.Markets on both sides of the Atlantic took a hit Thursday after European Central Bank President Mario Draghi deliver exactly what he had planned to — but no more — with the Stoxx Europe 600 falling 3.14 per cent, its worst performance since August’s market correction. At one point on Thursday, the euro jumped 3.4%, to a high of $1.0982, moving the currency in the wrong direction for a central bank desperate to boost ultralow inflation.

The ECB did ease its monetary policy further as economists expected, lowering its deposit rate to -0.3 per cent from -0.2 per cent and extending its current 60-billion-euro monthly asset purchases by another six months. Meanwhile, Federal Reserve Chair Janet Yellen indicated the conditions for higher rates in the U.S. had been met, boosting the odds the central bank will raise borrowing costs this month ahead of a jobs report on Friday. The euro’s move confounds projections that the currency could fall to parity with the dollar and may complicate efforts to stimulate growth in the eurozone. The ECB’s additional easing “is about 60 percent of what was hoped for,” Mitsuo Shimizu, deputy general manager at Japan Asia Securities Group Ltd. in Tokyo, said by phone. “The market was hoping for some Draghi magic, but instead we got a Draghi shock.” The regional benchmark gauge is poised to slide 0.4 percent this week for a second weekly drop. Its lurch higher reversed a downward slide that had gathered momentum in recent weeks on expectations of a significant ECB move and the Federal Reserve raising rates this month, pushing the world’s two largest central banks in opposite directions. “What happened today was a material disappointment from the ECB,” said Roger Hallam, chief investment officer for currency at J.P.

But investors had been speculating that Draghi would go above and beyond those measures, and had primed themselves with higher expectations, only to see those dashed. It’s down 3.8 percent this year, set for the first back-to-back annual declines in more than a decade as a slowdown in China accelerates and investors watch moves by central banks from the U.S. to Japan. The Frankfurt-based ECB will extend quantitative easing by six months until at least March 2017 at the current rate of 60 billion euros ($66 billion) a month, and broaden the assets purchased to include local and regional debt.

In the weeks before the meeting, Draghi and his colleagues had communicated growing concern about the low pace of euro-area inflation and the risks to the economic recovery, driving up investor expectations for a larger scale of easing. Many investors had figured the ECB would cut rates by more than it did and increase the amount of bonds it would buy in its €60 billion ($66 billion) monthly program. The monetary bloc’s gross domestic product is still 0.5-per-cent smaller than its peak during 2008, a stark contrast to the U.S., which has already exceeded its pre-crisis level.

The euro also gained against the currencies of many European countries, relieving some pressure on their central banks, which have been battling to stave off appreciation in their own currencies against the euro. Two members of the governing council — Bundesbank chief Jens Weidmann and executive board member Sabine Lautenschlaeger — have been very vocal against any further easing, arguing that monetary policy is already loose enough.

Futures on the Standard & Poor’s 500 Index rose 0.2 percent after the underlying gauge sank 1.4 percent on Thursday, sliding below its average price for the past 200 days for its steepest one-day slump since Sept. 28. While ECB officials said they don’t target the exchange rate, maintaining a weak currency is crucial for stoking the region’s rock-bottom inflation. The ECB said Thursday that it had cut its deposit rate—the rate it charges banks to store their excess cash reserves—by 0.1 percentage point to minus-0.3%, sending the euro above $1.07. Matthew Cobon, head of interest rates and currencies at Columbia Threadneedle Investments, which oversees £311 billion ($465 billion) in assets, said the market was expecting too much out of the ECB. Investors had thought that “central banks will always be there to get your back,” he said. “This is a realization that will not always be the case.” Mr.

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