Stocks slump as ECB disappoints, U.S. rate debate rages
London (Oct 2) World stocks were knocked hard on Thursday as signs of a strengthening U.S. jobs market stirred concerns about U.S. rate rises and the ECB failed to convince markets its actions would revive the euro zone's stuttering recovery.
Wall Street opened slightly lower after a sharp sell-off the previous session but it was Europe that remained under fire, with stocks tumbling anew after the European Central Bank's monthly meeting left markets feeling unsatisfied.
The bank's President Mario Draghi stressed again that it
remained ready to use further unconventional policy tools if
needed but there was little of substance to back it up and
details of a new ABS and covered bond failed to suffice.
"I think judging by the price action in the euro/dollar rate
in the run up to this meeting... the market was expecting Draghi
to come with much stronger FX rate rhetoric which we never got,"
said Vasileios Gkionakis Global Head of FX Strategy for
The FTSEurofirst 300 index of top European shares
extended losses as the ECB news conference came to a close and
was down 1.3 percent at 1,350 points, while bond yields rose and
the euro gained against the dollar for the first time in
Having been spooked by data on Wednesday that had shown
German factory activity shrinking for the first time in 15
months, China's manufacturing sector barely growing and the
United States slowing, plus the first U.S. case of Ebola,
investors had plenty to keep them cautious.
All that pushed MSCI's 45-country world stock index
to a five-month low as a fourth day of
back-to-back falls left it down more than 5 percent in the last
Commodity markets were also flashing warning signs. Brent
crude oil tumbled below $92 a barrel, extending a
three-month losing stretch that has seen it plunge 20 percent.
"This is a structural change in the oil market, with Saudi
Arabia explicitly stating that they are willing to compete on
price," said Bjarne Schieldrop, chief commodities analyst at SEB
"I think Brent will fall below $88 before we see the bottom
of the market."
TRILLION EURO QUESTION
On top of all the geopolitical and growth concerns, markets
are also struggling with the fact the Federal Reserve is about
to end years of pumping billions of dollars of stimulus into the
U.S. and global economy each month.
Ahead of non-farm Payrolls on Friday there were further
signs the U.S. jobs market is improving as data showed the
number of Americans filing new claims for unemployment benefits
unexpectedly fell last week.
Wall Street took it in its stride but there was little sign
of the stock market rout coming to end in Europe.
Britain's FTSE, Germany's DAX and France's
CAX saw 0.8-1.8 percent falls while Italy, Spain
and Portugal were down between 2 and 3 percent.
Draghi repeated that the ECB hopes its recently announced
plans will add a trillion euros to its balance sheet, but poor
demand for a new round of cheap loans last month is raising the
pressure for it too be more aggressive.
Japanese equities had led the selloff in Asia overnight. A
rebound in the yen after a sudden loss of altitude for
the high-flying dollar pushed Tokyo's Nikkei down a
sharp 2.1 percent to three-week lows.
"The market is quite nervous," said Alvin Tan, a strategist
at Societe Generale in London.
"What we are most concerned by is the risk backdrop. The S&P
500 appears to be in the process of breaking below the 100-day
moving average and on top of that we see volatility picking up
in not only equities but also currencies."
Markets in both China and Hong Kong had been closed for
public holidays but sustained civil unrest in Hong Kong is also
weighing on investor confidence, although the city's streets
were mostly calm on Thursday.
The risk-averse global mood had pushed 10-year U.S. Treasury
yields -- the benchmark for world debt markets --
into their biggest drop in just over a year on Wednesday. They
inched back up to 2.42 percent in early U.S. trading as German
Bunds edged away from all-time lows after the ECB
to 0.92 percent.
The dollar failed to get much traction though having slipped
back below 110 yen - a threshold breached for the first time
since 2008 this week. It was last down 0.3 percent at 108.61 yen
and on course for its biggest daily drop in over a month
against major currencies.