A gauge of global stock markets retreated on Thursday while the U.S. dollar rose, as the European Central Bank postponed interest rate hikes to 2020 and launched a fresh round of cheap loans to banks in an effort to rejuvenate the euro zone economy.
Equities had drifted lower over the past several sessions before the session’s sharp drop, sparked by the ECB’s change of direction just months after it wound down its massive quantitative easing program.
The ECB’s move puts it in sync with other central banks around the world that have been taking a dovish tack, including the Bank of Canada earlier this week. The ECB also cut its growth and inflation estimates for 2019 as well as those for 2020 and 2021, raising alarm bells for investors once again over global growth.
“What they are acknowledging is that there is this huge slowing of growth that we have all seen,” said Thomas Martin, senior portfolio manager at Globalt Investments in Atlanta, Georgia.
“They are scared. They are kind of keeping a smiling face on that they have the tools and can deal with it, but they are trying to stave off a growth decline.”
The growth concerns weighed on banking shares in the United States, which helped push the benchmark S&P 500 index to its lowest level since Feb. 14.
The Dow Jones Industrial Average fell 201.72 points, or 0.79 per cent, to 25,471.74, the S&P 500 lost 22.53 points, or 0.81 per cent, to 2,748.92 and the Nasdaq Composite dropped 84.46 points, or 1.13 per cent, to 7,421.46.
MSCI’s gauge of stocks across the globe shed 0.92 per cent. MSCI’s index was below its 200-day moving average for the first time since mid-February and on track for its fourth straight day of losses, the longest streak this year.
Stocks in Europe were whipsawed by the ECB action, falling from five-month highs and closing lower as European banks tumbled more than 3 per cent.
The pan-European STOXX 600 index lost 0.43 per cent.
The euro weakened to a low of 1.1204, its lowest since June 2017, and the dollar rose against a basket of major currencies after the ECB announcement.
The dollar index rose 0.65 per cent, with the euro down 0.83 per cent to $1.1211.
The global growth worries overshadowed generally solid economic data on the U.S. labor market and worker productivity. Non-farm payrolls data will be released on Friday.
The ECB move also sent prices on U.S. Treasury bonds higher, with 10-year yields hitting their lowest in a week.
Benchmark 10-year notes last rose 14/32 in price to yield 2.6411 per cent, from 2.692 per cent late on Wednesday.
Canada’s main stock index fell on Thursday, led by health care and material shares.
The materials group closed down 0.1 per cent and the interest-rate sensitive financial sector declined 0.5 per cent.
The Toronto Stock Exchange’s S&P/TSX composite index was unofficially down 35.56 points, or 0.22 per cent, at 16,056.51
Six of the 11 major sectors were lower, led by a 2-per-cent decline in health care stocks and 1.6-per-cent drop in the consumer discretionary sector.
Aphria Inc. was down 4.7 per cent, while Aurora Cannabis Inc. and Canopy Growth Corp. lost 3.7 per cent and 2.1 per cent, respectively.
Oil prices edged higher on Wednesday, supported by OPEC-led supply cuts and U.S. sanctions against exporters Venezuela and Iran, but gains were capped by falling stock markets and renewed concerns over demand growth.
Brent crude futures gained 31 cents, or 0.47 per cent, to settle at $66.30 a barrel.
U.S. West Texas Intermediate (WTI) crude futures rose 44 cents, or 0.78 per cent, to settle at $56.66 a barrel.
“The big picture is that short-term fundamentals are very strong,” said Phil Flynn, analyst at Price Futures Group in Chicago. “There’s still some nervousness about supply.”
The Organization of the Petroleum Exporting Countries and allies such as Russia this year have aimed to cut output and tighten oil markets, which has supported prices.
Reuters