LONDON: Europe’s main stock markets got a boost yesterday as the ECB pledged to further ease monetary conditions if necessary and hinted at quantitative easing to keep deflation at bay.
However stocks gave up much of their gains, with Frankfurt’s DAX 30 ending the day up just 0.06 percent at 9,628.82 points and London’s FTSE 100 index sliding into negative territory, giving up 0.15 to 6,649.14 points.
But the CAC 40 in Paris jumped 0.42 percent to 4,449.33 points, its highest close since before the global financial crisis started in 2008. Milan soared by 1.38 percent and Madrid by 1.42 percent.
As expected, the European Central Bank kept its gunpowder dry again, holding its key “refi” interest rate at an all-time low of 0.25 percent for the fifth month in a row.
However ECB chief Mario Draghi later told journalists the bank “remains resolute in our determination” to keep monetary conditions in the euro area accommodative and will “act swiftly” if necessary. “We do not exclude further monetary easing,” he added.
Although the ECB’s interest rate has been near zero for some two years, with inflation dipping close to outright falls in prices and growth remaining sluggish, analysts have been looking for the central bank to cut it further or take other steps to boost the economy. Draghi said the ECB was prepared to use not just conventional monetary policy tools such as interest rates, but also non-standard measures as well, including QE.
“Super Mario again proves he is a master wordsmith by shaking up financial markets with rhetoric about talk at the ECB over the possibilities of employing unconventional easing measures including QE,” said market strategist Ishaq Siddiqi at trading firm ETX Capital.
The idea of central bank purchases of government debt, the main monetary stimulus tool used by the US Federal Reserve and Bank of England to counter the global financial crisis, has been controversial in Europe. QE is anathema to Germany as Berlin sees it as financing of government deficits which is against the ECB’s charter.
Draghi downplayed the threat of dangerous deflation for the eurozone, and indicated that the strong euro was also an important factor in the eurozone’s current ultra-low inflation rate of 0.5 percent. “The exchange rate is very important for price stability,” said Draghi, adding however that it is “not a policy target”.
The strong euro means imported goods are cheaper, and European businesses have also complained it has hurt exports and thus recovery.
Draghi’s comments helped send the euro sliding to $1.3707 from $1.3765 late on Wednesday in New York. The dollar stood at 103.94 yen after reaching a 2.5-month high of 104.07 yen in Asian trading hours, which compared with 103.85 on Wednesday. The European single currency fell to 82.66 British pence from 82.80 pence, while the pound dropped to $1.6581 from $1.6622.
US stocks slid yesterday, with the Dow Jones Industrial Average dipping 0.10 percent to 16,555.92 points in midday trading. The broad-based S&P 500 gave up 0.16 percent to 1,887.94, while the tech-rich Nasdaq Composite Index shed 0.58 percent to 4,251.51.
Asian stock markets meanwhile mostly rose following another record close on Wall Street as US private jobs growth picked up, but Shanghai gave up early gains despite China unveiling a mini stimulus programme.
Global shares have enjoyed a broad rally this week following upbeat manufacturing data in key economies, while investors are keenly awaiting the release of a US non-farm payrolls report today.
AFP
