The euro slumped to a two-year low and European government bond yields dipped yesterday after European Central Bank chief Mario Draghi reiterated plans to revive the struggling eurozone economy by increasing the ECB’s balance sheet.
Stocks on world markets were mixed, with Wall Street little changed a day ahead of the US government’s employment report for October. The S&P 500 managed to touch another record high.
Markets had been unsettled leading up to the European Central Bank’s monthly policy meeting after Reuters reported that some central bank governors who set ECB policy were unhappy about Draghi’s secretive approach and erratic communication.
But in a statement that strengthened the ECB’s commitment to re-inflate its balance sheet toward €3 trillion, its crisis-era level, Draghi said disagreements were just part of central bank policymaking.
His statement and the promise of another trillion euros of easing sent the euro tumbling to $1.2396, its lowest level since August 2012, and pushed the FTSEurofirst 300 index of top European shares up one per cent, though the surge was short-lived. The index closed up 0.19 per cent.
The euro pared declines as investors looked for more concrete measures from the central bank and was last off 0.6 per cent, at $1.2405.
“It still seems as though the ECB is hemmed in by fiscal policymakers who are reluctant to expand the monetary base potentially and reform,” said Jack Ablin, chief investment officer at BMO Private Bank in Chicago.
“Draghi has sort of reached the end of his authority and his open-mouth policy isn’t working.”
Yields on government bonds issued by Portugal and France fell on the expectation that additional policy actions will keep rates low.
The yield on Germany’s 10-year note was flat at 0.828 per cent after hitting a high of 0.858 per cent.
US stocks edged higher as some disappointing earnings held equities in check, despite another round of upbeat data on the labor market.
The Dow Jones industrial average rose 34.01 points, or 0.19 per cent, to 17,518.54, the S&P 500 gained .59 points, or 0.08 per cent, to 2,025.16, and the Nasdaq Composite dropped 1.99 points, or 0.04 per cent, to 4,618.73.
The MSCI all-country world equity index was off 0.18 per cent.
The combination of Draghi’s message and a bigger-than- expected fall in the number of Americans applying for first-time unemployment benefits helped push the dollar to its highest level since June 2010 against a basket of major currencies.
The Bank of England also met yesterday and left its record low rates in place. There are signs the BoE is edging toward a first post-crisis rate hike, but a recent slowing of economic momentum has cooled expectations it will move soon.
The dollar’s strength continued to weigh on oil prices, Brent oil, which has plunged nearly 30 per cent from its high in June, remained near a four-year low at $82.82 a barrel.
US crude was down 0.8 per cent at $78.03.
Benchmark 10-year Treasury notes fell 6/32 in price to yield 2.3712 per cent.