Global Markets: Bonds jump, stocks flop as ECB restarts cash pumps
European stocks and Wall Street futures went from red to green and back again on Thursday while bond yields tumbled, as the ECB pushed back interest rate rises to 2020 and confirmed it will start doling out cheap cash again.
World stocks had been drifting in their worst run of the year, but were fired into life by the ECB`s moves which marked a screeching change of direction just months after it wound down its 2.6 trillion euro ($2.94 trillion) QE programme.
It had been hinting for months at new round of cheap loans, but scrapping - in response to a steep cut in the bank`s growth forecasts - what had previously been a pledge to keep euro zone rates sub-zero only until the summer came as a surprise.
The euro fell half a percent to $1.1260 from just over $1.13 and a drop to a nine-month low in Italy`s government bond yields led a broad-based bond rally that also sent 10-year German yields back below 0.10 percent.
"The fact the climate has become more uncertain doesn`t mean you have to stay put," ECB chief Mario Draghi had told a news conference. "You try to be proactive."
Fund manager Fidelity`s global economist, Anna Stupnytska, said the biggest dovish surprise was the change to forward guidance "Clearly, the Governing Council judged that the trajectory of the economy since the last meeting has been below their expectations."
Stocks whipsawed, first soaring but then quickly reversing course when the ECB acknowledged that Europe`s slowdown was longer and deeper than earlier thought.
Italian banks, which have been the biggest users of the ECB cheap loans (TLTROs), initially hit a five-month high.
Banks across the euro zone slumped more than 3 percent. The STOXX 600 index was down 0.6 percent and New York saw the S&P 500, Dow and Nasdaq open 0.1 to 0.3 percent lower.
That in turn kept MSCI`s 47-country world index heading for its fourth straight session in the red and its longest losing streak since December.
Head of investments at UK fund manager Hermes, Eoin Murray, questioned how much impact measures like ECB loans, or even another round of U.S. Federal Reserve stimulus, might now have considering how their potency has waned with every new round.
"I just don`t think it will have the power to get the economy to the point of takeoff," Murray said. "The question is, is the world moving towards Japanification?"WALL STREET STARTS WEAK
Europe`s rollercoaster ride came after Asia had struggled overnight.
Japan`s Nikkei fell 0.7 percent, while Hong Kong`s Hang Seng shed 0.9 percent and Chinese blue-chips snapped a four-day winning streak.
The red start on Wall Street meant its main indexes were also heading for a fourth straight session of losses.
"For some time, markets had been pricing in good news, namely that the (trade) talks between the U.S. and China will likely go well," said Tatsushi Maeno, senior strategist at Okasan Asset Management. "Now markets are having a pause."
Adding to concerns about the talks was data that showed the U.S. goods trade deficit surged to a record high in 2018, despite the Trump administration`s "America First" policies.
U.S. data out on Thursday pointed to strong labour market conditions. Friday will see non-farm payrolls released.
GRAPHIC-Slowdown to showdown: Five questions for the ECBTIME TO TLTRO
The euro slid to $1.1234 as early U.S. traders reacted to the ECB`s moves.
If the bank had needed any more convincing to change their stance, euro zone GDP was earlier confirmed to have risen just 0.2 percent quarter-on-quarter in the final part of last year.
With the euro on the ropes, the dollar jumped 0.5 percent on its index against six peers, and set a 2-1/2-month peak against the yen of 112.35.
Britain`s sterling was bashed back down below $1.31 after meetings between EU diplomats and British Prime Minister Theresa May`s chief lawyer, Geoffrey Cox, looked to have gone badly.
EU sources told Reuters they were now sceptical a reworked Brexit transition deal -- that needs to unravel the deep political complexities of the border between Ireland and Northern Ireland -- can be agreed before a pivotal summit on March 21-22.
"Markets are getting conflicting signals from lawmakers in Britain and the negative news flow from Brussels on the negotiation process, and that is keeping the pound in a tight range," said Nikolay Markov, a senior economist at Pictet Asset Management.
The gloomier outlook wasn’t confined to Europe either. Full-year 2019 GDP contractions of more than 1 percent were forecast for last year’s emerging market casualties Turkey and Argentina, whose currencies are again on the slide.
Among commodities, oil edged up amid ongoing OPEC-led supply cuts and U.S. sanctions against exporters Venezuela and Iran, although prices were prevented from rising further by record U.S. crude output and rising commercial fuel inventories. [O/R]
Brent crude futures were at $66.83 per barrel, up 84 cents or 1.2 percent, while U.S. West Texas Intermediate (WTI) futures were up 60 cents at $56.82.
($1 = 0.8840 euros)
(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)
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