Markets unimpressed by Draghi’s growth boost bid

USA and European markets sank on Thursday after the European Central Bank announced stimulus plans that were less aggressive than investors were expecting.

Now it’s the U.S. Federal Reserve’s turn to decide.

Peter O’Flanagan, head of trading at broker Clear Treasury, said: “We discussed the European Central Bank loading their bazooka yesterday but the reality of the release was more like a water pistol soaking market appetite”.

After moving around ¥122.70 in early Tokyo trading, the dollar dropped below ¥122.50 at one point as Tokyo stocks plummeted on selling by investors who were disappointed at the ECB’s decision not to increase the monthly pace of its asset purchases, contrary to expectations among some market players, market sources said.

The Standard & Poor’s 500 index climbed seven points, or also 0.4 percent, to 2,057. Greater stimulus would have put downward pressure on interest rates. Its rate cut of 0.10 percentage point, to -0.30%, was smaller than a 0.15 to 0.20 percentage point cut many traders expected.

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

There was no respite on Friday for investors still reeling from the disappointment of the European Central Bank’s stimulus package the day before, as they geared up for the latest U.S. employment data and a key OPEC meeting of oil producers. It also posted handsome gains on sterling and commodity currencies such as the Australian dollar. The German bonds for instance (the benchmark Euro yield curve) experienced significant moves, with the 10 year rate spiking to close to 0.7% from less than 0.5% (equivalent to a price drop of 1.8%); furthermore, whereas the yields up to (and including) the 7-year maturity bucket were negative prior to the meeting, they rebounded strongly after the European Central Bank press conference. Three-month London copper last traded at $4,610 a tonne, up 1.2 per cent on the day and recovering from the six-year low seen on November 23.

The dollar gained against the yen and Swiss franc, however, which helped boost the US dollar index.

“The domestic stock market may have fluctuated right after the ECB’s decision but will soon return its attention to a more critical issue, which is the imminent USA rate hike”, said Park Seok-hyun, researcher at Eugene Investment & Securities.