- European shares drive selloff as Draghi's moves disappoint
- Dollar sinks as ECB overshadows Yellen touting December hike
Equities tumbled around the world and government bonds sank, while the euro rallied the most in six years after the scale of additional stimulus from the European Central Bank disappointed investors just as the Federal Reserve signaled interest-rate increases are imminent.
The Standard & Poor’s 500 Index fell the most in two months and European equities had their worst day since the height of the summer selloff. The euro climbed against all its major peers, stinging traders who had piled on wagers against the currency amid expectations of aggressive easing from the ECB. Yields on 10-year German notes jumped 20 basis points, while rates on similar-maturity Treasuries posted their biggest advance since February. Brent crude rallied from a six-year low before Friday’s OPEC meeting.
The selloff in risk assets spread from Europe around the world, with investors anticipating deeper cuts to the region’s lending rates and an increase in the amount of ECB bond purchases to support flagging economic growth. Meanwhile, Fed Chair Janet Yellen indicated the conditions for higher rates in the U.S. had been met, boosting the odds the central bank will raise borrowing costs at its final meeting of 2015 on Dec. 16.
“Everyone was positioned the same way going into today,” Michael Block, chief equity strategist at Rhino Trading Partners LLC in New York, said by phone. “Draghi disappointed, the long bond is down over three points, trades are getting messed up, it all snowballed and on days when that happens you have a problem. It’s the idea the central banks won’t be there to bail out equities.”
The S&P 500 dropped 1.4 percent to 2,049.62 by at 4 p.m. in New York, sliding below its average price for the past 200 days for its steepest one-day slump since Sept. 28. Yellen’s comments, made in a speech to Congress, came as data showed U.S. service industries expanded in November at the slowest pace in six months, indicating a malaise in manufacturing may be impeding progress in other parts of the economy.
There is “no panic, just disappointment’’ with the ECB, as the selloff seems to be orderly, Ryan Larson, head of equity trading at RBC Global Asset Management U.S. Inc. in Chicago, said in an interview.
“There were huge expectations for Mr. Draghi and the ECB to provide further stimulus at today’s meeting and in the market’s mind they fell short of those expectations,” Larson said. “Couple that with renewed terrorism concerns following yesterday’s tragic events in California, Chairwoman Yellen reiterating again this morning the desire to raise rates sooner rather than later, albeit gradually, and it’s all been enough for participants to take money off the table.”
The Fed chief signaled a rate hike would likely come in two weeks when policy makers meet. The group is expected to end an historic era of near-zero interest rates in the U.S that dates back to December 2008, when the global financial crisis spurred central banks around the world to underpin their economies via stimulus measures.
The Stoxx 600 fell 3.1 percent on Thursday, reversing a gain of 0.9 percent after the ECB decision came through. All industry groups in the index sank by more than 2.2 percent. The benchmark had rallied 13 percent from its low in September through Wednesday, including its best two-day rally since July after Draghi signaled on Oct. 22 that the ECB would consider additional measures.
The euro jumped 3.1 percent to $1.0945 and added 0.4 percent to 1.08578 Swiss francs. The currency soared as much as 2.8 percent versus the yen, the most since July. The reduction in the euro-zone’s deposit rate had already been priced in by investors, and strategists at banks including ABN Amro AV, Commerzbank AG and DZ Bank AG had forecast a 20 basis-point reduction.
The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, dropped 1.4 percent, the most since March 18. It is falling from its highest level in data going back to 2005.
A report from the ADP Research Institute Wednesday showed U.S. employers added the most workers in five months in November, indicating government payrolls data due Friday may be stronger than some analysts predict. The odds of a rate increase in December were at 72 percent Thursday, based on futures data compiled by Bloomberg.
Yields on two-year notes from Germany to Spain had touched record lows before the ECB’s decision. They had been tumbling since Draghi stoked expectations of further easing at his Oct. 22 press conference, pledging that policy makers would re-examine the scope of the central bank’s existing quantitative-easing plan this month.
Treasuries suffered their biggest rout since February, with 10-year yields climbing 14 basis points, or 0.14 percentage point, to 2.32 percent.
Oil rebounded from the lowest price in more than six years in London as cash-strapped OPEC nations from Venezuela to Iran pile pressure on Saudi Arabia to reduce crude output at this week’s meeting in Vienna. West Texas Intermediate oil futures gained 2.9 percent to $41.08 a barrel after settling below $40 on Wednesday for the first time since August. Brent climbed 3.2 percent.
As OPEC’s de facto leader, Saudi Arabia may propose an eventual group production cut of 1 million barrels a day that may take effect in 2016, Energy Intelligence reported Thursday, citing a group delegate it didn’t identify. A Saudi official, who asked not to be identified because the matter isn’t public, called the report “baseless.”
The Bloomberg Commodity Index added 1.2 percent after closing Wednesday at its lowest level since 1999. Gold futures rallied from a five-year low after the ECB cut its deposit rate, boosting demand for the metal as a store of value, while industrial metals resumed losses.
Emerging-market currencies fell against the euro and bonds declined amid the disappointment over the ECB’s moves. The MSCI Emerging Markets Index retreated 0.3 percent.
Russia’s ruble retreated for a third day as all but one of the 24 developing-nation currencies tracked by Bloomberg weakened against the euro. The Brazilian real jumped 2 percent against the dollar after that nation’s central bank signaled it may raise interest rates early next year.
“The kind of volatility we’re seeing across markets right now sends people running,” said Blaze Tankersley, chief market strategist at Bay Crest Partners LLC, a brokerage firm in New York. “When you see a move like that, your first instinct is to get out of whatever position you have, regardless what asset class.”