LONDON: Europe’s major stock markets wavered and the euro tumbled against the dollar yesterday after a surprise decision by the ECB to cut its main interest rate to an all-time low.
Investors also digested news from across the Atlantic, with Washington reporting that the world’s biggest economy grew a stronger-than-expected 2.8 percent in the third quarter while weekly jobless claims fell slightly.
But it was the European Central Bank’s move to cut its central refinancing rate to a new record low of 0.25 percent that hit sentiment strongest.
“To an extent, the markets had priced in a rate cut from the ECB, with the euro falling more than 2 cents against the dollar following the release of the October inflation figure last week,” said Craig Erlam of Alpari research. “What clearly wasn’t priced in was when that rate cut would come.”
At close, London’s benchmark FTSE 100 index fell 0.66 percent to 6,697.22 points, while the CAC 40 in Paris fell 0.14 percent to 4,280.99 points. But Germany’s DAX 30 added 0.44 percent to hit a new record 9,081.03 points.
On the foreign exchange markets, a euro changed hands for just $1.3388, after sinking as low as $1.3296 at around 1330 GMT, lower than the $1.3505 just before the ECB’s quarter-point rate cut.
The rate cut sent yields on eurozone government debt lower with the benchmark rate on German debt falling to 1.684 percent from 1.741 percent on Wednesday. The rate on Spanish debt, the one-time eurozone sorepoint, fell to 4.053 percent from 4.149 percent.
With the fall in rates, the market was now on a “monetary drip” from the ECB, warned Thibault Prebay, fixed income director at Quilvest Gestion in Paris.
BoE keeps rates
The Bank of England, meanwhile, held its key lending rate at a record-low point of 0.50 percent and froze its cash stimulus level yesterday, as Britain’s economic recovery gathers pace.
Added to the mix, official data showed last week that the annual rate of inflation across the 17-nation eurozone fell to a four-year low of 0.7 percent in October.
US markets fell back, with the Dow Jones Industrial Average off 0.11 percent and Nasdaq sinking 0.94 percent. The day in the US was also dominated by social network Twitter, which debuted on Wall Street with a bang, up by more than 90 percent in early trade from the IPO price of $26 per share set on Wednesday.
Across in Asia, markets ended the day weaker ahead of the key rate calls and US data. The Hong Kong stock market closed down 0.68 percent, Tokyo dipped 0.76 percent, Sydney lost 0.22 percent and Seoul fell 0.53 percent.
The ECB rate cut had a huge effect on banking shares that were already up on solid earnings news. In Paris, shares in Credit Agricole rose 4.03 percent to ¤9.16, and Societe Generale stock gained 2.90 percent to ¤41.74, as the pair issued upbeat earnings.
Credit Agricole SA, the quoted vehicle for French Credit Agricole bank, revealed that it swung back into net profit in the third quarter with ¤728m ($984m).
In Frankfurt, Commerzbank shares surged 10.10 percent to ¤10.26. The German lender announced that net profit rose 15 percent to ¤77m in the third quarter, as deep restructuring measures begin to bear fruit. AFP
