U.S., European and Asian stock markets tumbled after the European Central Bank fell short of expectations in the expansion of the Eurozone’s current stimulus program. While shares fell, the euro rose high, posting its biggest one-day climb in nearly seven years.
The European Central Bank (ECB) unveiled a smaller-than-expected expansion of the monetary easing program despite a number of recent comments from top ECB official that haven’t been subtle in their indication that the central bank plans to significantly increase the scope of its current stimulus measures. ECB President Mario Draghi stated yesterday that the current program would be extended by six months, with the window open for further extensions. The central bank will also lower its deposit rate lower into the negative territory to 0.3% after standing at 0.2%. Investors expected that the ECB would aggressively expand stimulus in its fight against low inflation and stagnant growth in the region. The central bank cut its inflation forecasts for 2015 and 2016 to 1% and 1.6%, well below the previous target of near 2%.
In response, European stocks posted their worst session in three months. The pan-European Stoxx Europe 600 fell 3.14% to close at 372.11, its largest one-day decline since mid-August. None of the index’s sectors posted any gains, while the energy, mining and telecom sectors led with the strongest declines. Exporters were hit relatively hard by the move, causing the export-centric German DAX 30 to decline 400.78 points, or 3.58%, to trade at 10,789.24, its largest decline since August’s rout. The UK’s FTSE 100 declined 145.93 points, or 2.27%, to trade at 6,275.00 and the French CAC 40 dropped 175.55 points, or 3.58%, to close Thursday’s trading session at 4,730.21. U.S. stocks followed, putting the Dow Jones and S&P 500 in negative territory for the year, possibly aided by the likely U.S. interest rate hike expected this month. The Standard & Poor’s 500 fell 29.88 points, or 1.44%, to trade at 2,049.63, its biggest decline since late September. The Dow Jones Industrial Average declined 251.74 points, or 1.42%, to trade at 17,477.67, deepening the index’s move into negative territory for the year. The Nasdaq Composite shed 85.70 points, or 1.67%, to close Thursday’s trading session at 5,037.53.
The euro was lifted significantly by the ECB’s decision. The EUR/USD pair surged almost 3% higher from $1.0617 on Wednesday to $1.0904 after the ECB’s announcements. This feat is notable, especially when considering that the Federal Reserve has been openly discussing its shift to a tighter U.S. monetary policy.
This week’s major economic data releases conclude today with the U.S. nonfarm payrolls employment report, which holds special significance due to the Federal Reserve’s statements regarding a data-dependent interest rate hike in December. Friday will also see OPEC members meet to discuss the highly contentious production policies.