European markets sink after ECB disappoints on stimulus

LONDON: Europe’s stock markets nosedived and the euro rose after the European Central Bank cut a key rate and expanded stimulus with analysts saying it should have done more to rekindle eurozone growth.

The euro meanwhile recovered from close to an eight-month low, jumping to nearly $1.09 before settling at $1.0799 after having struck $1.0551 on Wednesday — which was the lowest level since mid-April.
At the ECB’s last monetary policy meeting of the year, the governing council decided to lower the key deposit rate, already in negative territory, by a further 0.10 percentage point. It kept other rates unchanged.
“The cut in the ECB’s deposit rate from -0.2 percent to -0.3 percent comes as a bit of a relief after incorrect last minute reports (by some media) that it had left rates unchanged,” said Jonathan Loynes, chief European economist at Capital Economics.
But he added that “hopes that the ECB would make up for the disappointingly small cut in its deposit rate with a decisive expansion of its asset purchase program have been dashed by the announcement that it has merely extended the program from September 2016 to March 2017.”
In mid-afternoon trade, Frankfurt’s DAX 30 dropped 2.25 percent and the CAC 40 in Paris lost 1.68 percent — after both plunging briefly more than three percent — and London’s FTSE 100 index was down 0.74 percent.
“The big story is the disappointment in the markets as the euro surged through $1.09 after expectations were that we would see more in terms of policy,” said James Hughes, chief market analyst at GKFX.
Policymakers had been widely expected to step up their vast stimulus program to counter weak inflation and boost economic growth.
ECB president Mario Draghi also announced Thursday cuts in euro area inflation expectations with the forecast for 2016 to reach 1.0 percent rather than 1.1 percent previously forecast. For 2017, inflation is seen reaching 1.6 percent, down from the previous prediction of 1.7 percent.
He also slightly raised growth forecasts to 1.5 percent in 2015, up from the previous forecast of 1.4 percent, while in 2017, it is seen coming in at 1.9 percent, slightly higher than the 1.8 percent predicted earlier.
The growth outlook for 2016 remains unchanged at 1.7 percent.
Meanwhile Wall Street stocks opened modestly higher Thursday as the dollar retreated against the euro following ECB stimulus measures that fell short of expectations.
Five minutes into trade, the Dow Jones Industrial Average was up 0.06 percent at 17,740.57. The broad-based S&P 500 added 0.10 percent, while the tech-rich Nasdaq Composite Index advanced 0.25 percent.
In commodity markets, world oil prices rebounded Thursday on the eve of OPEC output meeting in Vienna.
New York crude had tumbled Wednesday under $40 per barrel for the first time since August after another sharp rise in US stockpiles and production, suggesting demand remains sluggish.