World stock markets were lower yesterday as European Central Bank chief Mario Draghi again urged politicians to step up in efforts to breathe new life into the tepid eurozone economy, analysts said.
Draghi’s call came a day after the ECB began unleashing a radical company bond-buying programme, while Britain’s looming EU membership vote also seemed to be heavily on investors’ minds.
“Draghi’s warning that governments are not doing enough to stimulate growth feeds into the belief that the recovery is going to be extremely slow and weak,” Craig Erlam, senior market analyst at OANDA trading group, told AFP. “The other is that in making this speech, Draghi appears to be suggesting that the ECB is nearing the limit of what it can do, which may indicate that the central bank won’t be as aggressive with future stimulus as they have in the past.”
Draghi earlier told the Brussels Economic Forum that there were “many understandable political reasons to delay structural reform, but there are few good economic ones”.
“The cost of delay is simply too high,” he warned.
US stocks followed European markets into the red.
Germany’s DAX led the main European bourses lower, closing 1.3% down. The FTSE in London was 1.1% lower, while shares in Paris’s CAC were 1.0% off.
Analysts at Aurel BGC said, ahead of an upcoming US Federal Reserve meeting “but especially before the British referendum, the trend should remain uncertain”.
Mark Vickery, of Zacks Investment Research, said oil prices had been “a big factor” in helping to drive markets higher in recent days.
But prices retreated after hitting fresh highs for the year yesterday.
Bank shares in the US also pulled back as expectations diminish that the Federal Reserve will soon lift interest rates. The chances of a mid-year Fed rate hike have been crushed by data showing the US economy added a quarter of the jobs expected in May.
The central bank meets next week but dealers do not forecast a rise until September at the earliest.
In foreign exchange, the euro was down against the dollar, while the rate on British 10-year government bonds hit a new all-time low at 1.220 %.
“The ECB’s bond buying programme is at full throttle, which has helped to push benchmark government bond yields to record lows with the German 10-year being just above zero and UK’s equivalent dropping to a fresh low today,” said Fawad Razaqzada, market analyst at City Index.
Jasper Lawler, an analyst at CMC Markets, said a warning from US billionaire investor George Soros in the Wall Street Journal on Britain’s EU future ahead of the June 23 referendum was heaping further pressure on stocks.
“Mario Draghi warned of lasting damage without structural reforms whilst George Soros warned that a Brexit vote would cause the dissolution of the European Union. “Neither Draghi nor Soros believe in imminent disaster but the comments are a sober reminder of the risks to health of the European economy,” Lawler said in a note to clients.
The warnings chimed with a study by a Dutch government think tank that said the Netherlands would be hit hard if Britain leaves the EU, with a possible 1.2% fall in GDP by 2030 and a €10bn trade loss.