Categories: world

Why the ECB's surprise policy moves sent shivers through global stock markets

Mario Draghi has been grumbling about the deleterious side effects of trade tensions and other geopolitical worries for months, but the European Central Bank's surprise policy moves in the face of a slowing global economy appeared to bring the danger home to investors. ] Stocks on Wall Street fell alongside European equities, underlining rising worries among investors that weakness in the global economy could prove to be a drag on US Growth While analysts had expected the ECB to strike, policy makers went much further than anticipated. First, the ECB extended its so-called forward guidance on ultralow interest rates, saying it doesn't expect to start lifting them until at least early 2020. That's compared to its earlier plan to leave them on hold at least through the end of this buzzer. Second, the ECB launched its third iteration of a program of cheap loans &#821 1; known as targeted long-term refinancing operations, or TLTROs – to eurozone banks. See: Save the 'Japanification' of Europe, warn ING economists It all came as ECB staff slashed their macroeconomic forecasts, including reducing the outlook for 2019 gross domestic product growth to 1.1% from a previous 1.7% and signaling that inflation will take even longer to reach the central bank's target of near but just below 2%. Price stability is the ECB's sole policy mandate. Draghi introduces the GDP and inflation outlook for the euro area pic.twitter.com/8C5lxUR9NU – European Central Bank (@ecb) March 7, 2019 Draghi's comments on the economy were getting the blame…

Mario Draghi has been grumbling about the deleterious side effects of trade tensions and other geopolitical worries for months, but the European Central Bank’s surprise policy moves in the face of a slowing global economy appeared to bring the danger home to investors. ] Stocks on Wall Street fell alongside European equities, underlining rising worries among investors that weakness in the global economy could prove to be a drag on US Growth

While analysts had expected the ECB to strike, policy makers went much further than anticipated. First, the ECB extended its so-called forward guidance on ultralow interest rates, saying it doesn’t expect to start lifting them until at least early 2020. That’s compared to its earlier plan to leave them on hold at least through the end of this buzzer. Second, the ECB launched its third iteration of a program of cheap loans &#821

1; known as targeted long-term refinancing operations, or TLTROs – to eurozone banks.

See: Save the ‘Japanification’ of Europe, warn ING economists

It all came as ECB staff slashed their macroeconomic forecasts, including reducing the outlook for 2019 gross domestic product growth to 1.1% from a previous 1.7% and signaling that inflation will take even longer to reach the central bank’s target of near but just below 2%. Price stability is the ECB’s sole policy mandate.

Draghi’s comments on the economy were getting the blame from analysts and investors for a decline in European and, in part, US stocks, which remain low but at session. The pan-European Stoxx Europe 600














SXXP, -0.43%

index ended 0.4% lower, while on Wall Street, the S&P 500














SPX, -0.47%

shed 0.5% and the Dow Jones Industrial Average














DJIA, -0.53%

was off around 175 ponts, or 0.7%, after declining 320 points at its session low. European government bonds rallied and the euro














EURUSD, -0.7959%

extended a decline versus the U.S.

Of course, investors knew the eurozone economic outlook was nothing to write home about. Data started deteriorating last year. And while the most recent figures have shown some early signs of stabilization, economic figures have been lackluster so far in 2019. Draghi, in January, acknowledged that risks to the eurozone’s economic outlook had moved from broadly balanced to tilted to the downside.

But what might be for investors now is that despite Thursday’s policy actions, the ECB continues to see risks being tilted to the downside. Draghi himself noted that this was somewhat out of the ordinary. Typically, when the ECB takes concrete steps to shore up the economy, it announces that it has become balanced, said in its news conference.

So why not this time? Blame the world, at least part, Draghi said in his opening statement, citing “the persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets.”

While there are homegrown factors behind the eurozone economy’s slowdown, including the woeful performance of Germany’s auto sector, the external factors are mostly down to a slowdown in world trade thanks to China’s own slowdown and other concerns, including the potential for a slowdown in the United States. Also, the “lower confidence produced by the trade discussions” generally calls them this way. This sort of diminished confidence filtering through countries and sectors is one major factor for the slowdown in the eurozone economy.

While risks may still be tilted to the downside, Draghi said the ECB’s assessment is seen as the probability of recession as “very low.” And economists don’t all agree on how to divide the blame for the eurozone slowdown between external and internal factors.

But the overall This may be further reinforced by global growth, which was underlined by the Organization for Economic Cooperation and Development, which cut its global growth after revising down forecasts for almost every Group of 20 countries.

Opinion: The OECD shows in its latest downgrade how interwoven is the global economy

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