Stocks soft and euro choppy as ECB stands pat

Thursday 22:00 BST A choppy euro, mixed equities and falling German government bond yields characterised Thursday’s markets following the European Central Bank’s decision to leave monetary policy unchanged, saying it had not discussed extending its asset purchase programme.

Investor sentiment in general remains supported by expectations that big central banks will maintain their ultra-accommodative policies, and traders were keen to see what the eurozone’s monetary guardian had to say on the matter after its meeting on Thursday.

No shift in interest rates was expected, and that is what the ECB delivered. The main refinancing rate remains at 0 per cent, while the marginal lending facility stays at 0.25 per cent and the deposit rate is unchanged at -0.4 per cent.

There had been speculation that the central bank might alter the pace of its quantitative easing programme. But it stayed at €80bn a month.

ECB president Mario Draghi, did however, injected a degree of volatility into markets when he said during his press conference that he and colleagues had not discussed extending QE, disappointing some traders and causing the euro to surge, before paring back gains.

James Athey, fixed income investment manager at Aberdeen Asset Management, said the topic of bond tapering by the ECB had been pushed to its December meeting. “That will leave enough unanswered questions to keep bond markets volatile. An already nervous market will not take much comfort from his obfuscation today.”

The upshot of all this choppiness was that eurozone-focused assets traded pretty much around pre-announcement levels. The Euro Stoxx 600 fell 0.3 per cent before returning to trade 0.2 per cent firmer late in the day. The single currency — which at one point touched $1.1039 — moved down 0.4 per cent on the day to $1.0929, its lowest level since March.

The benchmark 10-year German Bund yield, which moves inversely to the price, initially rose before dropping 3 basis points to 0.003 per cent, holding near historic lows in response to the ECB’s bond buying spree.

Global equities were mixed. After the FTSE Asia Pacific index rose 0.3 per cent, the S&P 500 had a volatile morning before closing slightly down at 2,141. The Wall Street barometer sat less than 2.5 per cent shy of its record closing high touched in August, lifted in recent sessions by some generally well-received third-quarter corporate earnings reports.

London’s FTSE 100 ended roughly flat as foreign currency earners benefited from sterling slipping 0.3 per cent to $1.2255, while benchmark gilt yields held steady at 1.07 per cent as “hard Brexit” concerns lingered.

Meanwhile, 10-year US Treasuries were up 1 basis point at 1.75 per cent and the dollar index, which measures the buck against a basket of its peers, moved up 0.4 per cent to 98.31 after a report showed the manufacturing sector in the US mid-Atlantic region grew for the third month in a row.

Gold, which is usually sensitive to dollar moves and monetary policy expectations, traded down $3 at $1,266 an ounce.

Earlier in the global session, traders were keeping an eye on currencies for any signs of stress relating to the US presidential debate. The mood remained fairly calm, with analysts at Citi noting: “If market reactions are a barometer of how it went, then Clinton has held her lead over Trump.”

The Mexican peso has become a popular proxy for the US presidential race given that Mr Trump’s disapproval of the trade pact between the US, Mexico and Canada would likely mean an uncertain outlook for the latter two economies, should he be elected.

The peso, which hit a record low of 19.92 per US dollar before the first Clinton-Trump debate in late September, at one point after the latest joust hit 18.44, its strongest level in six weeks. It has recovered more than 7 per cent since a tape of Mr Trump making lewd comments helped Mrs Clinton extend her lead in the polls.

The Peso and other commodity currencies, such as the Canadian and Australian dollars, however, came under pressure on Thursday, as the price of Brent crude slipped 2.5 per cent to $51.39 a barrel.

The Australian economy shed a net 9,800 jobs in September, with a downtick in the unemployment rate to 5.6 per cent attributed to the previous month’s figure being revised higher.

Australia’s stock market took the news in its stride, with the S&P/ASX 200 climbing 0.1 per cent amid a generally positive tone across the Asia-Pacific region. Japan’s Nikkei 225 index rose 1.4 per cent to a six-month high as a steadier yen — off 0.2 per cent to ¥103.68 per dollar — helped exporters.

Hong Kong’s Hang Seng added 0.3 per cent, while China’s Shanghai Composite was flat.

Additional reporting by Peter Wells in Hong Kong

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