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While you were sleeping: Draghi delivers, stocks drop

Friday 11th March 2016

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It seems European Central Bank President Mario Draghi can’t win. 

Punished by sliding equity markets after Draghi was seen to have under-delivered on fresh stimulus measures in December, stocks fell again after the ECB announced a larger-than-expected package of measures including cutting its main lending rates and boosting its bond purchase program by a third to 80 billion euros a month.

Draghi has “brought out the bazooka this time, but after the initial reaction, the perception that central banks are beginning to panic and are running out of options crept back in,” Patrick Spencer, equities vice chairman at Robert W Baird & Co in London, told Bloomberg. “Maybe there’s less scope on the interest rates side, but there are more tools that can be used.”

In Europe, the Stoxx 600 Index finished the day with a 1.7 percent slide from the previous close. Earlier in the day it had risen as much as 2.5 percent, according to Bloomberg. 

“The Governing Council expects the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases,” Draghi told reporters in Frankfurt after the meeting. However, he also warned the bank doesn’t “anticipate it will be necessary to reduce rates further.”

France’s CAC 40 Index gave up 1.7 percent, the UK’s FTSE 100 Index declined 1.8 percent, while Germany’s DAX Index sank 2.3 percent.

“‘Whatever it took’ is now taken,” Bill Gross, manager of the Janus Capital Global Unstrained Bond Fund, wrote in a Twitter message, referring to Draghi’s 2012 speech in which he promised to do “whatever it takes” to save the euro.

Gross added that it was the “end of the line for more negative interest rates.”

“Global monetary policy door [is] closing fast—developed market yields have bottomed,” Gross noted.

Wall Street fell, as did US Treasuries. Yields on the benchmark 10-year note rose five basis points to 1.93 percent in late morning trading in New York.

In 12.40pm New York trading, the Dow Jones Industrial Average dropped 0.9 percent, while the Nasdaq Composite Index retreated 1.1 percent. In 12.26pm trading, the Standard & Poor’s 500 Index shed 0.6 percent.

Slides in shares of Exxon Mobil and those of United Technologies, last down 1.4 percent and 1.2 percent respectively, led the drop in the Dow.

Oil also declined amid concern an agreement about a freeze in output between major oil producers might prove harder than expected to achieve.

A meeting between oil producers to discuss a global pact on freezing production is unlikely to take place in Russia on March 20, Reuters reported, citing sources familiar with the matter, who noted that OPEC member Iran had yet to say whether it would participate in such a deal.

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