This morning’s quiet atmosphere was punctured this afternoon, as the ECB first sent markets up, and then crashing back down as it cut rates, but then restated its opposition to enhanced bond-buying in the Eurozone. Attention now turns to Brussels, where the latest EU summit starts this evening.
By 3.45pm (London time), the Dow Jones was down 0.54% at 12,084.44, while the S&P 500 had dropped by 0.83% to 1250.52. In London, the FTSE 100 failed to remain in positive territory, and was down 0.4% at 5524.53.
Draghi shatters the calm
It was a fairly quiet day until the ECB press conference got underway. Yesterday, we saw markets drop, thanks to comments from an anonymous German official, who hit risk appetite with downbeat comments about the likelihood of success at the imminent EU summit.
Today, we know the name of the man who has sent markets reeling; Mario Draghi, the president of the European Central Bank.
Spread betting markets pressed forward in the wake of the announcement that the ECB had cut rates again, to 1% from 1.25%. Markets then made more gains as Mr Draghi appeared on TV screens for his press conference, as he said that the ECB would expand its liquidity and collateral operations to help ease funding pressures on banks.
However, risky assets fell as he said that the decision to loosen monetary policy had not been unanimous, and that it would be difficult and very complex to use the IMF as a means of supporting the Eurozone bond market.
The first of these comments raises the ugly prospect of national rivalries handicapping decision-making at both the central bank, and worse, at the Eurozone summit tomorrow.
France and Germany appeared to have reconciled their policy positions at their Monday meeting, but that only takes out two nations, leaving the other 25 EU members.
And even this new show of Franco-German unity might not survive into the summit tomorrow. The latter comment underscores how reluctant the ECB is to start printing money to shore up the Eurozone, something that France has been desperate for it to do.
Summit warm-up starts
There yet remains a mountain for the Eurozone and the wider EU to climb. Indices are being torn by conflicting emotions of hope and fear; hope that the politicians will, somehow, step in to rescue us all, and fear that, as so many times before, we will be sorely disappointed.
President Sarkozy today said that Europe had never been in so much danger before, I assume he meant post-1945, adding that time was fast running out to sort this crisis.
Meanwhile, Chancellor Merkel has reiterated her position that treaty changes are necessary to enact long-term solutions. The long-awaited summit starts tonight with a convivial dinner of EU leaders.
It will be interesting to see whether national differences last much beyond the first course, or whether the EU can hold its various parties together long enough to hammer out a solution.
Unseemly flight to safety develops
In general, this afternoon has seen a flight to the US dollar and Treasuries, as safe-haven trades once again become desirable.
As well as falls in stock markets, oil and gold both dropped by more than 1%, with the yellow metal down to $1716 per ounce and Brent crude hitting $107.80 per barrel.
Copper and platinum lost 1% apiece, while palladium fell 2.2% to $669 per ounce, giving up some of the impressive gains seen over the past week.
Gains among banks and miners evaporated following the ECB conference. RBS and Lloyds were hardest hit, down around 4.5%, with Barclays 2% softer.
Platinum miner Lonmin, newly ejected from the FTSE 100, was down 2.6% at 1025p, while Rio Tinto and Xstrata dropped 2.2% and 3.3% respectively.
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'Spread Betting Markets Higher on ECB Interest Rate Cut', Article by IG Index, last update: 8-Dec-11
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