European stocks slump as ECB disappoints

European equities headed for their biggest slump since September after the additional stimulus measures unveiled by the European Central Bank underwhelmed investors.

The Stoxx Europe 600 Index fell 2.8 per cent as European markets approached their close, reversing a gain of 0.9 per cent. In Dublin, the Iseq was down almost 2 per cent.

The European Central Bank lowered its deposit rate, and president Mario Draghi said it will extend its quantitative- easing program until at least March 2017, including debt issued by regional and local governments. It didn't, however, expand its monthly asset purchases.

“There was underdelivery all the way from the ECB today and the interest rate announcement was just the beginning of it,” said Jasper Lawler, a London-based market analyst at CMC Markets.

He recommends selling German stocks because exporters won’t continue to benefit from a lower euro.

“They did something, but not enough. The market believed Draghi too much and wasn’t paying too much attention that the European recovery had been improving.”

High expectations

Heading into Thursday’s meeting, investors had high expectations.

The Stoxx 600 climbed 13 per cent from its low in September up to Wednesday, including its best two-day rally since July after Mr Draghi signalled in October that the central bank would consider additional measures. On Monday, the gauge closed at a three-month high, taking its valuation to 16.5 times estimated earnings - closer to the multiple of 17.6 for the Standard and Poor’s 500 Index. Traders were so confident that they saw little need to hedge: the number of Euro Stoxx 50 Index options changing hands last month was the lowest since July 2014. Contracts betting on further gains were the most owned.

After leading gains earlier on Thursday, carmakers were some of the biggest losers among industry groups as the euro erased losses.

Almost 550 of Stoxx 600 shares fell, with commodity producers slumping the most, heading for their lowest levels in more than two months.

Trading of Stoxx 600 companies was 44 per cent greater than the 30-day average. The ECB cut its deposit rate 10 basis points to minus 0.3 per cent

Policymakers left the main refinancing rate and the marginal lending rate unchanged. The central bank revised its inflation outlook, cutting it to 1 per cent for 2016 and 1.6 per cent for 2017, from 1.1 per cent and 1.7 per cent, respectively. It kept its prediction for next year’s economic growth at 1.7 per cent and increased it to 1.9 per cent for 2017, from 1.8 per cent.

Bloomberg