Euro climbs, stocks fall as ECB signals end to rate cuts – Reuters

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NEW YORK The euro rose and global stock markets fell on Thursday as major new stimulus measures by the European Central Bank were offset by a signal from ECB chief Mario Draghi that it will only cut interest rates again in the most extreme of circumstances.

Investors had initially cheered the ECB’s announcement that it will cut rates to fresh record lows, start buying corporate debt for the first time and effectively begin paying banks to borrow from it to lend to companies and households.

That optimism dissipated as Draghi suggested that years of interest rate cuts may finally be at an end.

“Rates will stay low, very low, for a long period of time and well past the horizon of our purchases,” Draghi said, referring to the bank’s asset purchase program, due to end in March 2017.

But “from today’s perspective and taking into account the support of our measures to growth and inflation, we don’t anticipate that it will be necessary to reduce rates further.”

The euro recovered from six-week lows against the dollar of $1.0823 to trade at a three-week high EUR= as money market rates in the euro zone rose to price out further deposit rate cuts. The euro was last at $1.1212, up 1.9 percent.


“Pretty much the key thing was that Draghi drew a line under further rate cuts,” said Ned Rumpeltin, head of European Currency Strategy at TD Securities, noting it was the biggest move in the euro since the ECB’s December meeting.

“That was a very clear broadcast and will be the final takeaway for people today.”

The pan-regional FTSEurofirst 300 index .FTEU3 closed 1.8 percent lower, while U.S. stocks fell in midday trading, with a slide in oil prices weighing on energy shares.

The Dow Jones industrial average .DJI was down 136.38 points, or 0.8 percent, to 16,863.98, the S&P 500 .SPX lost 15.41 points, or 0.77 percent, to 1,973.85 and the Nasdaq Composite .IXIC fell 51.47 points, or 1.1 percent, to 4,622.91.

MSCI’s all-country world stock index .MIWD00000PUS fell 0.4 percent.

“In the medium and longer term, most larger investors are looking through (the ECB move) and saying ‘Will it be difficult removing ourselves from that all-in central bank policy-type environment?’” said Chris Hyzy, chief investment officer at Bank of America Global Wealth & Investment Management in New York.

Bond markets were buffeted by Draghi’s mixed signals.

In the United States, the benchmark 10-year note US10YT=RR was last down 15/32 in price to yield 1.9447 percent, against 1.892 percent on Wednesday.

Oil prices fell, with U.S. crude retreating from three-month highs as refinery maintenance threatened to raise record inventories of crude.

Brent LCOc1 was down $1.08, or 2.7 percent, at $39.99 a barrel, while U.S. crude CLc1 slid 62 cents, or 1.6 percent, to $37.67.

(Additional reporting by Chuck Mikolajczak in New York and Marc Jones in London; Editing by Bernadette Baum)

Euro climbs, stocks fall as ECB signals end to rate cuts – Reuters