Asian shares have joined a slump in global markets after the European Central Bank’s stimulus package fell well short of markets’ high expectations.
Traders warned that the ECB’s failure to deliver another big round of monetary easing meant that it had “lost credibility” with the markets.
Japan’s Nikkei index tumbled 2.2% on Friday, the biggest daily drop since September, and closed with a weekly loss of 1.9%, the most in three months.
Chinese stock markets were also down with the Shanghai Composite index down 1.5% and the Hang Seng index in Hong Kong falling by 1.1%. The Australian share market closed down 1.5%.
Wall Street’s benchmark S&P 500 stock index saw its biggest one-day percentage decline since September on Thursday, dropping 1.4%.
The French and German bourses fell more than 3.5% on Thursday and futures trading points to fresh falls on European markets when markets open again on Friday morning. Britain’s FTSE 100 was expected to fall 0.6%, and France’s CAC40 and Germany’s DAX to open down 0.8%.
The drama started after the ECB cut its deposit rate deeper into negative territory and extended its asset buying by six months. Its rate cut of 0.10 percentage point, to -0.30%, was smaller than a 0.15 to 0.20 percentage point cut many traders expected.
The central bank did not increase the amount of government bonds it buys while the six-month extension of the programme was perceived as the bare minimum, given traders looked for an extension of one year or even making it an open-ended plan.
Chris Weston of IG in Melbourne said the ECB had “undoubtedly lost some credibility” by failing to deliver a “shock and awe” approach.
“We are left with a market that is now of the belief that we are unlikely to see further easing,” he said.
Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo, said: “It’s like doing so much sweet talking before your marriage that you set it up to be a big disappointment.”
The package sent traders scrambling to unwind short euro positions which they had built since late October on the expectation that ECB chief Mario Draghi would “do what we must to raise inflation as quickly as possible” with another round of stimulus measures.
The euro jumped 3.1% on Thursday to trade at $1.094, its biggest single-day gain since March 2009.
Investors are now turning their attention to the US non-farm payrolls data on Friday, which is likely to cement expectations that the Federal Reserve will hike interest rates later this month, barring surprisingly weak readings.
Federal Reserve chair Janet Yellen, speaking before Congress’ joint economic committee on Thursday, said the United States may be “close to the point at which we should be raising” rates.
She also said the US economy needs to add fewer than 100,000 jobs a month to cover new entrants to the workforce, perhaps setting an implicit floor for jobs growth that policymakers want to see.
Also attracting investor attention was the OPEC meeting later on Friday. Crude oil prices rose about 3% on the eve of the meeting, as traders hedged their positions.
Brent crude futures climbed to $44.09 per barrel, having bounced back from Wednesday’s three-month low of $42.43.
