Stocks hit, euro shines after ECB wrong-foots traders

Asian shares joined a global markets slump on Friday after the European Central Bank’s stimulus package fell well short of markets’ high expectations, sending the euro rocketing to its biggest one-day surge in nearly seven years.

European shares were poised for further declines, with financial spreadbetters expecting Britain’s FTSE 100 to fall 0.6 per cent, and France’s CAC40 and Germany’s DAX to open down 0.8 per cent.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.8 per cent, extending losses for the week to 0.3 per cent.

Japan’s Nikkei tumbled 2.2 per cent at the close, the biggest daily drop since September 29. It was down 1.9 per cent for the week, the most in three months.

China’s CSI300 index slipped 1.6 per cent, shrinking gains for the week to 3.8 percent.

On Thursday, Wall Street’s benchmark S&P 500 stock index had its biggest one-day percentage decline since September 28, dropping 1.4 per cent. The pan-European stock index of FTSEurofirst 300 shed 3.3 per cent, the biggest fall since Aug. 24.

The drama started after the ECB cut its deposit rate deeper into negative territory and extended its asset buying by six months.

Its rate cut of 0.10 percentage point, to -0.30 per cent, was smaller than a 0.15 to 0.20 percentage point cut many traders expected.

The central bank did not increase the amount of government bonds it buys while the six-month extension of the programme was perceived as a bare minimum, given traders looked for an extension of one year or even making it an open-ended plan.

"It's like doing so much sweet talking before your marriage that you set it up to be a big disappointment," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

The package sent traders scrambling to unwind short euro positions, which they had built since late October when the ECB chief Mario Draghi said there would be another round of stimulus measures.

The euro jumped 3.1 per cent on Thursday, posting its biggest single-day gain since March 2009. The common currency was little changed at $1.0942, but still near its one-month high of $1.0981 hit on Thursday.

That took the dollar’s index against a basket of six major currencies down to a one-month low of 97.591 overnight, before bouncing back to 97.869 on Friday.

The euro’s rebound also helped to lift other currencies against the dollar, with European currencies outperforming.

The British pound rose 1.2 per cent to $1.5145 while the Swiss franc gained 2.4 percent to 0.9933 franc on the dollar on Thursday. The yen gained 0.5 per cent to 122.61 per dollar, and was last trading at 122.58.

The Chinese yuan also firmed against the dollar, with the People’s Bank of China setting the midpoint rate at 6.3851, the strongest gain in a month.

The spot market opened at 6.3867 per dollar and was last changing hands at 6.3973.

Reuters