The euro rose yesterday and stock markets dropped as the European Central Bank kept its economic stimulus powder dry and held key rates steady.
ECB president Mario Draghi pleaded for “patience” while unprecedented amounts of cash already injected into the financial system worked their magic, before trying anything new.
But patience, it turned out, was not the order of the day in eurozone equity markets, with a disappointed Frankfurt market closing 0.7% lower at 10,675.29, after testing 10,600, and Paris ending down 0.3%.
“All things considered, today was not the event it was built up to be,” said Craig Erlam, market analyst at Oanda.
Wall Street joined the European trend, with the Dow Jones index also sliding in early New York business.
Investors never expected any immediate steps from the ECB yesterday, said Andrea Tueni, an analyst at Saxo Banque in Paris, “but neither did we get anything reassuring about future action”.
The euro, meanwhile, rose after ECB economists said they now expect 1.7% growth this year, up from the 1.6% they forecast in June.
Outside the eurozone, London outperformed its continental peers, closing 0.2 % higher to close at 6,858.70 after receiving a boost from merger and acquisition news in Britain’s fast-consolidating tech sector, in the wake of SoftBank’s blockbuster purchase of iPhone chip designer ARM Holdings earlier this year.
British software group Micro Focus saw its share price leap by double digits after it agreed to merge with some of Hewlett Packard Enterprise’s software assets.
The deal creates an entity worth $8.8bn that will be “one of the world’s largest pure-play enterprise software companies,” the pair said in a statement.
But investors were mostly interested in the ECB where traders had expected Draghi to lay the groundwork for policy shifts later in the year, especially if Brexit economic pain worsens demonstrably. But for the moment, Draghi said the changes to the outlook are not “so substantial to warrant a decision to act. Our monetary policy is effective”.
While Draghi stated the ECB stands ready to take further stimulus measures if needed, he also pleaded for restraint to give the bank’s unprecedented stimulus measures a chance to work.
“Ultimately we’ve got to be patient,” Draghi said.
Oanda’s Erlam said he suspected Draghi’s team may also need time to revamp the ECB’s entire quantitative easing programme as the supply of bonds it can still buy runs dry. “That would explain why they did not announce an extension to the QE programme beyond March 2017 today because they must first decide how the program will be adapted,” he said.