European stocks, euro slide despite ECB pledges to act

A screen displaying the Spanish risk premium that marks 181 at the Madrid Stock Exchange yesterday. The Ibex 35 surged 1.10% to 10,400 points yesterday due to the great reception of the government’s debt.

AFP/London

European stocks and the euro pulled back yesterday as investors were apparently unimpressed with the ECB’s pledges to act if necessary to ward off deflation or a credit crunch.

Investors had widely expected the European Central Bank and Bank of England to hold their rates steady, but despite strong comments by ECB chief Mario Draghi, markets slid.

London’s benchmark FTSE 100 index closed down 0.45% at 6,691.34 points, while Frankfurt’s DAX 30 shed 0.80% to 9,421.61 points and the CAC 40 in Paris fell 0.84% to 4,225.14 points.

The Ibex 35 surged 1.10% to 10,400 points yesterday due to the great reception of the government’s debt.

The ECB’s policy-setting governing council left its central “refi” refinancing rate at the current historic low of 0.25%.

The BoE, also held its key interest rate at a record-low level of 0.50% and maintained the level of stimulus pumping around the economy at £375bn.

The head of France’s Cour des Comptes, which analyses government policy, said the government’s current efforts to reduce the country’s debt are insufficient to get country of the “danger zone”.

France’s debt is expected to peak at 95.1% of GDP this year, according to government forecasts.

In London, “retail stocks have once again taken centre stage today with disappointing trading updates from Marks and Spencer, Morrisons and Tesco over the Christmas period,” said CMC Markets analyst Michael Hewson.

Tesco’s share price fell by 1.2% to 324.4 pence after announcing group sales slid around the all-important Christmas trading period, dealing a fresh blow to Britain’s biggest retailer.

Morrisons’ shares fell 7.8% to 234.5 pence after it announced a 5.6% drop in like-for-like sales.

Sainsbury fell by 2.4% to 351.4 pence but Marks and Spencer’s climbed 3.6% to 460.9%.

The euro dropping sharply against the dollar, from about $1.3627 to below $1.3570, after Draghi acknowledged continuing worries about the threat of deflation in the eurozone, despite pledging decisive action if conditions worsen.

CMC Markets’ Hewson said “Draghi did prompt some euro weakness by being slightly more downbeat than expected when he stated that rates would stay at current levels, or lower for an extended period.”

The euro later stood at $1.3593, compared to $1.3571 late on Wednesday in New York.

The euro edged up to 82.57 British pence from 82.52 pence Wednesday. The British pound gained to $1.660 from $1.6447.

Gold prices grew to $1,226 an ounce from $1,221 Wednesday on the London Bullion Market.

US stocks were trading down on Thursday despite positive jobs data. In midday trade the Dow Jones Industrial Average was down 0.35% to 16,405.50 points. The broad-based S&P 500 slid 0.19% to 1,834.01, while the tech-rich Nasdaq Composite dropped 0.39% to 4,149.53.