Stocks worldwide slumped yesterday after European Central Bank President Mario Draghi failed to provide jittery markets with a specific stimulus programme for the eurozone’s flagging recovery, and US markets slid for a fourth straight day.
Although Draghi again said that the ECB remained ready to use further unconventional policy tools if needed, a lack of specifics on the bank’s plan to buy secured debt left investors unimpressed.
On Wall Street, the S&P 500 sank to its lowest level since August 8, stung by declines in energy shares.
But losses in Europe were steeper, with the FTSEurofirst 300 index falling 2.4 per cent.
“There is almost no way for central banks to make an announcement of this sort that are initially received in a very positive way,” said Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, New Jersey.
“It always reflects the fact that they even have to make announcements and get involved already reflects a difficult situation.”
Draghi repeated that the ECB hopes its recently announced plans will add a trillion euros to its balance sheet, but poor demand for a new round of cheap loans last month is raising the pressure for it to be more aggressive.
The Dow Jones industrial average fell 75.14 points, or 0.45 per cent, to 16,729.57, the S&P 500 lost 11.94 points, or 0.61 per cent, to 1,934.22, and the Nasdaq Composite dropped 32.17 points, or 0.73 per cent, to 4,389.92. The S&P energy index was down 1.2 per cent.
The euro rose 0.3 per cent, its biggest gain against the dollar in two weeks. “The euro rose not because of what Draghi said, but what he didn’t say,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
“We haven’t heard any meaningful language regarding an increase in the scope of assets to be purchased, in other words, outright quantitative easing.”
Investors have become more cautious recently as they digest economic data and other news. Data on Wednesday showed that German factory activity had shrunk for the first time in 15 months and China’s manufacturing sector is barely growing.
The first diagnosed case of Ebola in the United States added to the skittish investment climate.
MSCI’s 45-country world stock index fell 1.1 per cent and touched a five-month low of 407.18.
Oil prices remained under pressure after price cuts from top producer Saudi Arabia added to supply glut worries. Brent crude oil was last down 1.9 per cent to $92.34 after earlier hitting a low of $91.55.
US crude was off 0.8 per cent to $90.05 and fell as low as $88.18, its lowest level in almost 18 months.
Markets are also grappling with the imminent end to the Federal Reserve’s massive monthly bond-buying programme, which is raising questions about the timing of the Fed’s first interest rate hike in years.
The risk-averse global mood pushed 10-year US Treasury yields – the benchmark for world debt markets – to as low as 2.38 per cent on Wednesday. But yesterday the 10-year pared losses and was last down 1/32 in price to yield 2.4035 per cent.