LONDON – European stock markets are posting sizeable falls Monday with investors seemingly anxious over what further stimulus the European Central Bank will provide at its policy meeting later this week. A warning from the Bank for International Settlements over a “gathering storm” in the global economy further weighed on sentiment.
KEEPING SCORE: In Europe, Germany’s DAX fell 1 per cent to 9,731 while France’s CAC-40 lost 0.8 per cent to 4,419. Britain’s FTSE 100 lost 1 per cent to 6,141. Wall Street was headed for losses at the open too, with Dow futures and the broader S&P 500 futures 0.3 per cent lower.
BANK WARNING: Contributing to the downbeat start to the week was a warning from The Bank for International Settlements that central banks are running out of policy room and have been “over-burdened” over the past few years. The BIS’s chief economist, Claudio Borio, said market participants have registered that fact and their “confidence in central banks’ healing powers has – probably for the first time – been faltering.” The statement carries some weight coming from an organization that is often referred to as the central banks’ central bank. “We may not be seeing isolated bolts from the blue, but the signs of a gathering storm that has been building for a long time,” Borio added.
ANALYST TAKE: “Dampening spirits from the off, a warning from the Bank of International Settlements that there is a ‘gathering storm’ of macro-maladies ready to plague the markets did nothing to ensure last week’s rebound continued this Monday,” said Connor Campbell, financial analyst at Spreadex. “Especially notable is the BIS’ comment that investors are fearful that the world’s central banks are running out of options, something that doesn’t bode well for Thursday’s ECB meeting, which already faces a weighty set of expectations.”
ECB IN FOCUS: The big event this week will likely be the latest policy meeting of the ECB. Following a series of hints from ECB President Mario Draghi and confirmation that inflation across the 19-country eurozone has fallen back below zero, investors expect a further stimulus from the central bank. That could include a further cut into negative of the deposit rate, from minus 0.3 per cent, and an expansion of the monthly bond-buying program from the central bank. Most interest is on the expected deposit rate cut, which essentially penalizes banks from keeping balance at the ECB in the hope that they lend to the wider economy.
CHINESE GROWTH CUT: China has been one of the main concerns in markets this year as investors have fretted over the scale of the slowdown in the world’s number 2 economy. Over the weekend, Premier Li Keqiang lowered Beijing’s official growth target to 6.5-7 per cent from last year’s “about 7 per cent” and promised more market-opening reforms. The ruling Communist Party is striving for more self-sustaining growth based on domestic consumption to reduce reliance on trade and investment. But the slowdown is rattling markets and unnerving China’s trading partners as it dampens demand for industrial components and raw materials. Li promised to open oil, power, telecoms and other state-dominated industries to private competitors, but did not say if foreign companies would be allowed in. To stimulate growth, Li said the government will boost deficit spending.
ASIA’S DAY: The Shanghai Composite Index rose 0.8 per cent to 2,697.34 and Sydney’s S&P ASX 200 gained 1 per cent to 5,142.80. Seoul’s Kospi advanced 0.1 per cent and Bangkok and Taiwan also rose. Tokyo’s Nikkei retreated 0.6 per cent to 6,911.32 and Hong Kong’s Hang Seng shed 0.1 per cent to 20,159.72.
ENERGY: Benchmark U.S. crude gained 45 cents to $36.37 per barrel in electronic trading on the New York Mercantile Exchange. Brent crude, used to price international oils, added 46 cents to $39.18 per barrel.
CURRENCY: The euro was down 0.4 per cent at $1.0959 while the dollar fell 0.2 per cent to 113.58 yen.