US, European stocks fall as ECB falls short of expectations

The FTSEurofirst .FTEU3 dropped 3.3 percent, the index’s biggest daily drop since August 24, as trading screens went red across the region. An hour later, Draghi also said its bond-buying program will be extended in an effort to jump-start growth and fight dangerously low inflation.

The euro’s rebound also helped to lift other currencies against the dollar, with European currencies outperforming.

The ECB cut its deposit rate by 0.10 percentage point to -0.30 percent on Thursday, smaller than a 0.15 to 0.20 percentage point cut many traders had expected. Many in the markets, however, had predicted a bigger cut to -0.4 per cent. While the UK’s FTSE 100 Index slumped by 2.3%, the German DAX Index and the French CAC 40 Index both plunged by 3.6%.

The euro traded as high as $1.0894 during Draghi’s press conference, an increase of almost three US cents from $1.0607, where it traded late Wednesday in NY.

In testimony before a congressional committee Thursday, Fed Chair Janet Yellen signaled the conditions necessary for an interest-rate increase have been met and that she hopes to tighten monetary policy slowly after liftoff.

The euro jumped as much as 3.1pc against the dollar after the policy announcement and bond yields surged. “The ECB’s decision to deliver only a very bare minimum of additional monetary stimulus indicates that the hawks at the ECB are stronger than many market participants had thought”, he said.

A less aggressive path by the European Central Bank, therefore, could ease the path of US rates higher. “I’d thought that for a recovery in the European economy we’d need some bold easing measures, but since Draghi seems to be taking the economic recovery lightly, it’s possible that it could take a turn for the worse for some time”.

The New Zealand dollar fell to 44.02 British pence from 44.51 pence yesterday, slipped to 81.61 yen from 81.96 yen, declined to 90.67 Australian cents from 90.98 cents and edged up to 4.2573 yuan from 4.2512 yuan. The yield on Germany’s two-year note shot up to around minus 0.3% Thursday, climbing from historic lows in the minus-0.4% range.

The energy sector dropped almost 0.1 per cent as the January crude contract settled $1.14 higher at US$41.08 per barrel and the January contract for natural gas was ahead 1.6 cents at US$2.18. If the US economy continued to create jobs at a solid pace last month, after producing a better-than-expected 271,000 jobs in October, it will virtually cement a Fed rate hike on December 16, barring any shocks between now and then. Brent crude, which is used to set prices for worldwide oils, climbed $1.35, or 3.2 percent, to $43.84 a barrel in London.