The ECB Disappoints Markets with Its Monetary Policy Decisions

He acknowledged some market doubts that central banks are proving unable to reverse the downward trend in inflation, saying that, even if there is a lag to the impact of policies in place, they are working.

Market expectations had been sky high ahead of the meeting after ECB President Mario Draghi and other executive board members had, in a number of speeches since October, dropped hints that more stimulus was urgently needed. The Nasdaq was down 86 points or 1.7% at 5,038.

Global markets rated lower after Draghi’s announcement because they were expecting more from Draghi on quantitative easing (Or QE), and he failed to deliver.

Even after the European Central Bank surprise and some weak United States data lately – notably the manufacturing sector’s biggest contraction since 2009 – traders are still pricing in about a 75 per cent chance of a rate hike this month and possibly two more next year.

Analysts queued up to stress the influence on the market of the impending European Central Bank decision with the data giving European Central Bank chief Mario Draghi “a little bit more ammunition”, according to James Hughes, chief market analyst with GKFX.

The Dow Jones industrial average lost 262 points, or 1.5 per cent, to 17,467 as of 2:30 p.m. Eastern. We would need a number below 100,000 for the market to wobble in its belief in a Fed move this month, ” he said.

Asia’s shares did not look any better yesterday, with Japan’s Nikkei 225 down 2.18 per cent, China’s Shanghai SE Composite dropping 1.67 per cent, and Hong Kong’s Hang Seng falling 1.04 per cent.

The pan-European FTSEurofirst 300 index was down 0.2 percent at 1,460.13 points by 0928 GMT, a day after slumping 3.3 percent to record its biggest one-day fall since late August after the ECB’s policy update fell short of high expectations.

“But ECB’s recent decision definitely fell short of the market’s expectations and this was reflected in the domestic stock market”. The contract jumped $1.14, or 2.9 percent, to close at $41.08 a barrel on Thursday in NY.

With inflation running near zero and likely to miss the bank’s target of almost 2% for years to come, the ECB had all but committed to action. Everyone knows that Fed chair Janet Yellan is going to raise American interest rates in December, because she keeps on publicly hinting at how strong the U.S. economy is and how it can handle tighter policy.

Financial stocks were also mostly lower, as Barclays eased 0.07% and HSBC Holdings (L:HSBA) declined 0.37%, while the Royal Bank of Scotland (L:RBS) lost 0.46%. Worryingly for Mr Draghi, longer-term inflation expectations – closely watched by the bank – remain at around 1.75 per cent, increasing the risks of entrenched deflation. Crude oil prices rose about 3 percent on the eve of the meeting, as traders who although expecting no cuts in OPEC production hedged their positions.