European Central Bank rolls out more stimulus but fails to satisfy high market expectations

Markets plunged in reaction with both Frankfurt’s DAX 30 and the CAC 40 in Paris ending the day down 3.58 percent, while London’s FTSE 100 index lost 2.27 percent.

Asian shares joined a global markets slump on Friday after the European Central Bank’s stimulus package fell well short of markets’ high expectations, sending the euro rocketing to its biggest one-day surge in almost seven years.

“The markets had already been pricing in a deposit rate cut, and some investors had actually been looking for a bigger cut – maybe of 15 to 20 basis points”, said Hantec Markets’ analyst Richard Perry.

On Thursday, the bank cut deposit rates further into negative territory – meaning lenders must pay to park cash with it and so look to loan more – and extended the length of its bond purchases.

The news sent the euro soaring 3.1% against the dollar yesterday.

Craigs Investment Partners broker Chris Timms said the sell-off came as ECB president Mario Draghi announced the bank would extend its programme of monthly bond purchases through to March 2017 and left the door open for an extension. But the news had little impact on the currency market, according to several market strategists.

While November payrolls might not be as impressive as the 271,000 new jobs created in October, economists still expect a solid addition of 200,000 jobs for last month. The euro’s stellar rally on Thursday knocked the dollar index back to a one-month low of 97.591, from a 12-1/2-year peak of 100.510 scaled midweek on the coattails of hawkish comments from Yellen.

The greenback weakened against a string of emerging currencies, falling 0.7 percent against the South Korean won, 0.3 percent on Taiwan’s dollar, 0.1 percent against Indonesia’s rupiah and 0.1 percent against the Thai baht. The yen gained 0.5 per cent to 122.61 per dollar, and was last trading at 122.58.

Federal Reserve Chair Janet Yellen, speaking on Thursday, said the United States may be “close to the point at which we should be raising” rates. Traders are keeping an eye on Friday’s OPEC meeting, though expectations were that the cartel would not cut its production levels, despite low prices.

Precious metals also rebounded, with gold rising 0.8% on Thursday after hitting a near six-year low of $1,045.80/oz earlier in the day.

The expected rise in U.S. rates and slowing Chinese demand are hurting copper, which is staring down the barrel of an eight consecutive weekly decline.