Investing.com - European markets tumbled Thursday as the European Central Bank's attempts to revive flagging growth in the region merely focused attention on a sharp slowdown in growth.
The euro fell to its lowest levels of the year against the dollar, the yield on German 10-year Bunds fell to its lowest since 2016, while the STOXX 600 was on track for its worst day in a month. Italian 10-year yields hit their lowest since May, when the country's populist government was preparing to assume power.
EUR/USD hit a session low of 1.1228, the weakest since Nov.13 and was trading at 1.1236 by 10:36 AM ET (15:36 GMT).
The ECB not only cut its 2019 growth forecast for the euro zone to 1.1% from an earlier 1.7%, it also unveiled a new round of low-cost loans to banks and pushed back the timeline for what would be its first interest rate hike in nearly a decade.
"The weakening in economic data points to a sizeable moderation in the pace of the economic expansion that will extend into the current year," Draghi told a press conference. "The persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets appears to be leaving marks on economic sentiment."
In a regular update, the ECB also said it now expects growth of 1.6% in 2020, down from 1.7%. The forecast for 2021 remains unchanged at 1.5%.
Draghi said this year’s growth forecast had been revised down “quite significantly” because the euro zone "is in a period of continued weakness and pervasive uncertainty."
The ECB will begin a new series of quarterly targeted longer-term refinancing operations, known as TLTROs, in September 2019. They'll run through March 2021, each with a maturity of two years, and be tied to the refinancing rate. That means their cost will go up if the ECB does hike rates next year, something that may lead to banks not showing much interest in them
Draghi said that the new policy measures will help to ensure that bank lending conditions remain favorable. But some argued that the package wasn't actually enough to tackle the risks that the ECB was trying to forestall.
"A closer inspection reveals the package is less ambitious than Draghi suggested and does not change the market outlook materially," said Nordea Markets analyst Jan van Gerich, who said he now expects a first ECB rate hike in June 2020.
The ECB also slashed its inflation forecasts, to 1.2% this year, down from 1.8% in December, and to 1.5% in 2020, down from 1.6%. For 2021, it sees inflation at 1.6%. If that turns out right, it would mean that the ECB had undershot its inflation target for nine years in a row, Nick Kounis, head of financial market research at ABN Amro, said via
The euro could fall to $1.10 by the end of the month, according to analysts at ABN Amro.
The bank said "most of the negative news is in the euro" and expects it will end Q1 and Q2 at $1.10 where it will "bottom out."
The ECB left its main refinancing rate, which determines the cost of credit in the economy, at zero, as expected.