AFP / London
Stock markets delivered a mixed response yesterday to an update from the European Central Bank, as it became the latest central bank to adopt a dovish stance faced with fears of a global economic slowdown and the US-China trade war.
Indices in Frankfurt and Paris fell after the ECB announced it would extend its key interest rates for the eurozone at historic lows for at least the next six months.
Fawad Razaqzada at Forex.com said the market’s initial response “was that the central bank was not dovish enough and so the euro spiked higher and the DAX 30 0.2% lower at 11,953.14”.
London’s benchmark FTSE 100 index closed 0.5% higher at 7,259.85 points driven by consumer goods stocks, but the Frankfurt DAX 30 index and Paris CAC 40 sunk, with the latter weighed down by the collapse of a proposed merger between French car giant Renault and Fiat Chrysler.
Wall Street ticked upwards in midday trading, buoyed by US Federal Reserve officials earlier in the week seeming to suggest a possible future rate cut.
“However, trade uncertainty remains elevated, global growth worries are lingering, and US regulatory concerns are persisting, while the markets grapple with the European Central Bank’s monetary policy decision,” said a note from Charles Schwab.
Markets have carefully watched for developments in Washington’s trade battle with Beijing and yesterday US President Donald Trump said he would make a decision about whether to impose new tariffs on Chinese goods after a G20 meeting at the end of the month.
At its regular monthly policy meeting, the ECB predicted higher growth and inflation for the eurozone this year, but lowered both forecasts for 2020.
Central banks around the world are adopting a more dovish – or more expansive – monetary policy stance amid a slowdown in the global economy.
“Another day, another downbeat assessment of the global economy that has been provided from a leading central bank,” Marianna Sofocleous at FXTM said of the ECB update.
India’s central bank yesterday delivered a third consecutive interest rate cut, following Australia’s central bank which cut rates earlier in the week.
On the corporate front, shares in Renault slumped by nearly seven percent after Italian-American peer Fiat scrapped its blockbuster merger proposal. Fiat shares slid 0.5% on the Milan stock market.
Asian stock markets made modest gains yesterday as trade tensions continued to weigh on investors’ minds, with some cautiously hoping that the United States and Mexico will strike a compromise on tariffs.
Trump earlier said that some progress – but not enough – had been made in Wednesday’s talks with Mexico on averting the tariffs he intends to impose next week unless the flow of undocumented migrants into the US is stopped.
Coming on the heels of the US-China trade war, Trump’s threats against Mexico have intensified fears for the global economy, hurting oil prices and lowering overall growth forecasts.
Crude prices continued downwards yesterday, following the previous day’s sharp decline caused also by high US supplies and weak demand growth.
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