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- Asian shares joined a slump in global markets on Friday after the European Central Bank’s stimulus package fell well short of markets’ high expectations, sending the euro rocketing on its way to its biggest one-day surge in nearly seven years. On Thursday, Wall Street’s benchmark S&P 500 stock index .SPX had its biggest one-day percentage decline since Sept. 28, dropping 1.4 percent. The pan-European stock index of FTSEurofirst 300 .FTEU3 shed 3.3 percent, the biggest fall since Aug. 24. The S&P 500 suffered its biggest daily drop since late September on Thursday as the European Central Bank disappointed market hopes for greater stimulus.The ECB move triggered a spike in the euro EUR= that caught investors by surprise, forcing them to shift positions and that affected many asset classes. Bond prices dropped after the announcement. The ECB cut its deposit rate deeper into negative territory and extended its asset buys by six months, as expected. But some market participants had hoped for greater stimulus.
- The euro jumped 3.1 percent on Thursday, posting its biggest single-day gain since March 2009. The common currency last traded at $1.0920, down 0.2 percent from late U.S. levels but still near its one-month high of $1.0981 hit on Thursday. 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 percent, 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 bare minimum, given traders looked for an extension of one year or even making it an open-ended plan. 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.
- Investors are now turning their attention to the U.S. jobs data, which is likely to cement expectations that the Federal Reserve will hike interest rates later this month, barring surprisingly weak readings. Federal Reserve Chair Janet Yellen, speaking before Congress’ Joint Economic Committee on Thursday, said the United States may be “close to the point at which we should be raising” rates. She also said the U.S. economy needs to add fewer than 100,000 jobs a month to cover new entrants to the workforce, perhaps setting an implicit floor for jobs growth that policymakers want to see. That would be a fairly low bar given that economists’ median forecast was 200,000, when even the most conservative forecast in a Reuters poll of more than 100 economists was 150,000. The November jobs report is scheduled for release at 0830 EST (1330 GMT) Friday, providing a last key bit of economic data for the Fed before a policy meeting on Dec 15-16 that may see the first U.S. interest rate increase in a decade. Job creation has been averaging around 200,000 a month this year, a figure Yellen said was “quite a bit” above the number needed to continue absorbing slack in the labor market. Though unemployment at 5 percent is at or near the level many policymakers consider being full employment, Yellen said that high levels of discouraged workers, part-time employment and other job market measures show there is still room for progress. Yellen in her testimony was generally upbeat, spelling out how the economy has largely met the criteria the Fed has set for its first rate hike. Unemployment is low, growth continues at a modest pace, and Yellen said she is confident inflation will return to the Fed’s target over time.
- Crude oil prices extended gains on Friday, as the dollar slumped against the euro, although market focus is fixed on an OPEC meeting in Vienna where the group is expected to reiterate its high output strategy. A 3 percent fall in the dollar against the euro EUR= over the past 24 hours held sway over oil prices as the Organization of the Petroleum Exporting Countries (OPEC) is widely expected to maintain its output ceiling of 30 million barrels per day (bpd) at its policy meeting on Friday. The re-entry of Indonesia into OPEC, after a seven-year break, and Iran’s plans to ramp up output as soon as Western sanctions on the country are lifted, will have a bigger influence on outlook, analysts said. Sources told Reuters on Thursday there was little chance of Saudi Arabia making a formal proposal for OPEC output cuts, contingent on co-operation from non-OPEC, as reported by Energy Intelligence.