European Central Bank President Draghi says more stimulus could come if needed

In the US, the Dow dropped 252 points, and the S&P 500 fell 1.4%, its worst day since late September, while the Nasdaq lost 1.7%. Despite the bold announcement, markets were disappointed by the size of the stimulus, hammering USA and European stocks and driving up the euro against the dollar, according to The Wall Street Journal.

Nevertheless, as Michelle Meyer, deputy head of USA economics at Bank of America Merrill Lynch states while there’s a lot that could move the markets through the end of this week, U.S. Fed chair Janet Yellen will remain focused on what’s going on in Europe. Annual inflation in the eurozone stands at only 0.1 percent and has hovered around that level for a year or so. But the asset purchase expansion that the market had anticipated failed to materialize, prompting investors to buy back euros sold off ahead of the expected interest rate cut. Disillusionment with Draghi’s announcement dragged the index to its biggest loss since August, contributing to a selloff that wiped about US$270 billion from the value of global equities.

“If a national central bank acquires a quarter of its country’s national debt, institutional market participants, which are often required to hold such bonds, will rush to buy the country’s new debt issues, implicitly financing not only this year’s fiscal deficit, but much more“.

Approaching the close of trading in Asian markets, the Nikkei 225 in Japan was down 2.2%, or 436 points, at 19,504 while the Hang Seng in Hong Kong was off 1.1%, or 250 points, at 22,167.

Those expectations sharply pushed down the euro, and revived talk that it may soon hit parity with the dollar for the first time since 2002. “Now we have a tailwind from fiscal policy”, a source said. U.S. crude oil declined 2.8 per cent to $US39.90 a barrel.

When bond yields rise, their prices fall.

Although raising expectations too high was seen by some as a communications error, Draghi still managed to form a broad consensus and proved that he is not always guided by markets, as some critics have suggested, several sources said.

Following recent dovish comments from ECB President Mario Draghi, markets had expected more aggressive measures including a larger cut in the deposit rate and perhaps even an increase in the monthly pace of asset purchases.

Investors around the world had been hoping that the European Central Bank would step in to provide some of the liquidity and monetary largesse which they believe is about to be withdrawn by the US Federal Reserve.

In early trade, Europe’s index of 300 leading shares was down 0.5 per cent at 1,456 points, extending Thursday’s 3.3 percent slide.

“There was a good argument for a smaller move so as to not influence the Fed and let them do what they needed to do”, the source said.

The euro had dropped over 5 per cent against the dollar since the start of October, but posted its biggest one-day percentage gain in over six years Thursday.

Mr Samour-Cachian said he is holding onto bets that stocks will rise as the eurozone’s economy recovers, and favors financial and consumer discretionary stocks in particular.