European stock markets slumped and the euro lost ground against the dollar yesterday, hit by yet more signs of recession in Europe as the European Central Bank kept interest rates at an historic low.
At the close, London’s benchmark FTSE 100 index of top companies fell 2.30 per cent to 5,703.77 points, Frankfurt’s DAX 30 slumped 2.84 per cent to 6,784.06 points and the Paris CAC 40 shed 2.74 per cent to 3,313.47 points.
In Spain, where a disappointing sovereign debt auction rattled nerves, the Ibex 35 lost 2.09 per cent. Milan shares tumbled 2.42 per cent.
US stocks also sank, tracking losses in Europe, with the Dow Jones Industrial Average down 1.15 per cent at around 1600 GMT and the tech-rich Nasdaq off 1.69 per cent as the broad-market S&P 500 shed 1.15 per cent.
In foreign exchange trading, the euro dropped to $1.3137 from $1.3233 in New York late Tuesday. The dollar slipped to 82.65 Japanese yen from 82.78 yen.
“The weakness comes amid continued concerns in Europe and ... Federal Reserve meeting minutes that dampened expectations of any further economic stimulus,” Charles Schwab analysts said.
A key survey yesterday showed that eurozone private sector activity retreated in March, providing new evidence that the 17-nation single currency area was in recession.
The composite Purchasing Managers Index (PMI) compiled by Markit research firm hit a three-month low, dropping to 49.1 points in March from 49.3 in February. A score below the neutral 50-point mark indicates contraction.
With the European economy tipping towards recession, the ECB’s policy-setting governing council voted to leave its benchmark interest rate unchanged at 1.0 per cent at its regular monthly meeting.
The ECB has played firefighter since the start of the crisis, cutting interest rates, buying up the bonds of debt-stricken countries and, most recently, pumping more than €1.0 trillion into the banking system in a bid to avert a dangerous credit squeeze.
ECB chief Mario Draghi said that any talk of an “exit strategy” from the exceptional measures “for the time being is premature.”
For Kathleen Brooks, a research director at FOREX.com, the ECB “was offering nothing new this month to help either the sovereigns (states or) the banks, which was a slight disappointment to the market especially since sovereign concerns have flared up once more in Spain.
“The ECB’s message was clear – banks and governments need to get their own houses in order, the ECB has done all it can,” she said.
Spain raised nearly €2.6 billion at an auction but was forced to pay higher rates amid fresh concerns over its strained public finances despite a tough budget.
Even before the rate decision, European equities were lower after minutes from the US Federal Reserve’s last policy meeting dealt a blow to hopes of the US central bank launching new stimulus.
The Federal Open Market Committee’s (FOMC) mid-March meeting minutes showed bankers considered improved employment, housing and financial market data as “positive, on balance.”