GLOBAL MARKETS: European Stocks Decline Ahead Of BOE And ECB

 
   By Ishaq Siddiqi 
   Of DOW JONES NEWSWIRES 
 

LONDON (Dow Jones)--European stock markets were modestly lower Thursday, as a final hour selloff on Wall Street Wednesday dampened investors' spirits and triggered a bout of profit taking ahead of key interest rate announcements from the Bank of England and the European Central Bank.

"Ultimately, traders got what they expected from the U.S. Federal Reserve Wednesday, and then decided they didn't like it. The weight of speculation today comes down on the BOE extending quantitative easing, so it's mostly a question of by how much," said David Morrison, strategist at GFT. The market is expecting the BOE to announce an increase in quantitative easing of GBP25 billion to GBP50 billion and the ECB is expected to keep the rates on hold at 1%, "but the focus will be on the questions and answers for comments on possible future changes to short and long-term liquidity operations," said Kenneth Broux, market economist at Lloyds Banking Group.

At 0915 GMT, the pan-European Stoxx 600 index was 1.2% lower at 236.16. London's FTSE 100 index had lost 1.1% at 5049.64. Frankfurt's DAX index was off 1.2% at 5376.08, and the CAC-40 index in Paris was 1.1% lower at 3628.46.

Traders said the indexes may tread water until the announcements from the BOE and ECB are released, due at 1200 GMT and 1245 GMT respectively. "Traders will also be keeping an eye on [sterling] as those comments are published. Later, we have jobless claims in the U.S. and third-quarter nonfarm productivity, [both due 1330 GMT], so the markets will probably continue their volatile pattern," said Arifa Sheikh-Usmani, equity trader at Spreadex LTD.

Meanwhile, the basic resource sector declined heavily as copper futures slipped. Also, shares in Vedanta Resources PLC (VED.LN) fell 4.7% after it reported a 46.2% fall in first-half net profit. The pan-European Dow Jones Stoxx 600 basic resource index was 3.6% lower at 411.1.

On Wall Street Wednesday, another volatile session saw the Dow Jones Industrial Average swing between a 150-point gain and the flat line in just the last hour and a half, with much of the conversation and trading centered around the Fed.

Late in the day, the Fed kept its key rate target near zero, as traders expected. Its policy statement contained no major changes in language from the one issued in late September, but the central bank cut the amount of agency debt that it plans to purchase to $175 billion from $200 billion.

The Dow closed up 0.3% at 9802.14, marking its second increase in three sessions. The Standard & Poor's 500 closed up 0.1% at 1046.50. And the Nasdaq Composite was down 0.1% at 2055.52.

Traders were initially relieved by the Fed's decision, but the euphoria waned by late in the day. Among the market's weak points were financial stocks, which fell broadly as a group, and small-cap companies. Both categories have suffered lately as investors have shed risk from their portfolios - a trend that the Fed announcement may not necessarily reverse in the weeks ahead.

"After some of those [stocks] had outperformed higher-quality, larger-cap companies, the more relatively attractive those higher-quality, lower-risk assets have become," said Julius Ridgway, an investment adviser. "We just wouldn't jump on the bandwagon of risk right now at all."

In Asian trade Thursday, stock markets were mostly lower, weighed down by Wall Street closing off its highs and as the Fed's policy statement provided few fresh cues.

Japan's Nikkei 225 was down 1.3%, with South Korea's Kospi Composite down 1.7%. Hong Kong's Hang Seng index was 0.6% lower.

"It's highly likely that after the 'non-event' Fed decision Asian markets will trade flat to slightly lower in coming days, with the next catalyst for stocks to move definitively in a particular direction being the U.S. nonfarm payroll report due out Friday," said Cameron Peacock at IG Markets.

In the currency markets, traders were looking past the Fed statement and focusing on the monetary policy meetings of the European Central Bank and the Bank of England, as well as the U.S. jobs data due Friday.

"The Fed's on hold, the global economy is recovering and that's negative for the dollar," said Adam Boyton, currency strategist at Deutsche Bank. "There's no reason the euro couldn't pass $1.55 by the end of the year," he added.

However, by 0925 GMT, the euro was lower as Japanese exporters settled accounts, and was trading at $1.4845, down from $1.4861 in late New York trading Wednesday. The dollar was quoted at Y90.16, down from Y90.72.

Meanwhile, spot gold was at $1090.05 per troy ounce, up $4.67 from the New York close, while in the oil market Nymex December oil futures were down 43 cents at $79.97 per barrel after settling 80 cents higher Wednesday.

European bond markets were weaker, with the December bund futures contract last seen at 121.25, down 0.50.

-By Ishaq Siddiqi, Dow Jones Newswires; +44-20-7842-9488; ishaq.siddiqi@dowjones.com

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(END) Dow Jones Newswires

November 05, 2009 04:28 ET (09:28 GMT)


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