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While you were sleeping: ECB fails to deliver

Friday 5th December 2014

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European stocks fell, while Wall Street was mixed, rebounding from earlier losses to inch higher to record highs for both the Dow and the S&P 500, after the European Central Bank failed to deliver on additional stimulus. 

The ECB also downgraded its forecasts for euro-zone inflation and gross domestic product through 2016. Investors had anticipated ECB President Mario Draghi would have expanded the central bank’s asset purchase program, currently consisting of covered bonds and asset backed securities, to sovereign debt. 

“Early next year the Governing Council will reassess the monetary stimulus achieved, the expansion of the balance sheet and the outlook for price developments,” Draghi said in prepared remarks after the meeting.

“Should it become necessary to further address risks of too prolonged a period of low inflation, the Governing Council remains unanimous in its commitment to using additional unconventional instruments within its mandate,” Draghi said. “This would imply altering early next year the size, pace and composition of our measures.”

Europe’s Stoxx 600 Index ended the session with a 1.3 percent drop from the previous close. The UK’s FTSE 100 Index fell 0.6 percent, Germany’s DAX Index slid 1.2 percent, while France’s CAC 40 Index dropped 1.6 percent.

"Investors were hoping for more substance on sovereign bond purchases, but Draghi hasn't given investors anything that is really new," John Smith, senior fund manager at Brown Shipley in Manchester, England, told Reuters.

Several policy makers from Germany, the euro-zone’s largest economy, have made clear they do not favour bond purchases to help stoke euro-zone inflation.

"It's now patently clear that ... Draghi lacks the crucial German support for launching full blown quantitative easing," Nicolas Spiro of Spiro Sovereign Strategy told Reuters.

After markets closed in Europe though, Bloomberg reported that the ECB would be considering a broad based asset purchase plan at its January 22 meeting.

Wall Street was mixed in a narrow range. In afternoon trading in New York, the Dow Jones Industrial Average eked out a 0.03 percent advance, while the Nasdaq Composite Index crept 0.09 percent higher. The Standard & Poor’s 500 Index slipped 0.05 percent. 

Earlier in the session, the Dow touched a record high 17,937.96, while the S&P 500 climbed to a record 2,077.34.

A Labor Department report showed initial claims for state unemployment benefits declined by 17,000 to a seasonally adjusted 297,000 for the week ended November 29. A report on Friday is expected to show non farm payrolls rose by 230,000 last month after rising by 214,000 in October, according to a Reuters survey of economists. 

“Overall the picture of labour is one of ongoing payroll gains and gradually firming wage growth,” Gregory Daco, lead US economist at Oxford Economics USA in New York, told Bloomberg News.

Shares of Microsoft gained, last up 1.9 percent for the biggest percentage gain in the Dow, after Barnes & Noble agreed to buy back the company’s stake in its Nook business.


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