VIENNA (dpa-AFX) - The European markets have finished Thursday's session largely in negative territory, despite the actions taken by both the European Central Bank and the Bank of England. The further stimulus provided by both banks was overshadowed by comments made by ECB President Mario Draghi.
The markets have been rallying in the last few days in anticipation of the announcements from the policy meetings of the ECB and the BoE. Markets across Europe got off to a positive start on Thursday, but reversed direction after the bank decisions were announced. The return of the U.S. markets in the afternoon, following the Independence Day holiday, provided no relief. The U.S. stock markets got off to a weak start due to some disappointing same store sales results.
The European Central Bank announced a historic interest rate cut on Thursday in an attempt to shore up the 17-nation economy that is slipping into recession. At its meeting in Frankfurt, the Governing Council led by ECB President Draghi reduced the main refinancing rate by 25 basis points to 0.75 percent. The move was in line with economists' expectations.
Further, the central bank also lowered its deposit rate by 25 basis points to zero. The marginal lending facility rate was also slashed to 1.50 percent from 1.75 percent, implying a narrowing of the interest corridor.
'Inflationary pressure over the policy-relevant horizon has been dampened further as some of the previously identified downside risks to the euro area growth outlook have materialized,' Mario Draghi said in his introductory statement at the post-decision press conference in Frankfurt. 'The underlying pace of monetary expansion remains subdued.'
Citing indicators, he said there was renewed weakening of growth in the second quarter and heightened uncertainty. 'Looking beyond the short term we expect the euro area economy to recover gradually, although with momentum dampened by a number of factors,' he added. 'The risks surrounding the economic outlook for the euro area continue to be on the downside.'
UK policymakers decided to relaunch monetary stimulus in hopes of giving the recession-hit economy a jump start. The Bank of England had temporarily halted their quantitative easing programme back in May, but with inflation in check and the European economy teetering, the nine-member Monetary Policy Committee decided to raise the size of its asset purchase plan by GBP 50 billion to GBP 375 billion.
At the end of two-day meeting, the committee today left the interest rate unchanged at 0.50 percent as widely expected by economist. The rate has been maintained at the current level since March 2009.
China reduced its interest rates for the second time this year in a bid to support the economy that is showing increasing signs of slowing growth. The People's Bank of China said in a statement on Thursday that it was lowering the one-year deposit rate by 25 basis points. The one-year lending rate was reduced by 31 basis points.
The latest reduction comes just a month after the central bank announced its first rate cut since late 2008. On June 7, the PBoC reduced the one-year deposit rate to 3.25 percent from 3.50 percent. The one-year loan rate was cut by a quarter point to 6.31 percent.
France saw its 10-year borrowing costs rise at an auction on Thursday and raised slightly less than the maximum amount planned. The rising borrowing costs indicate that markets remain doubtful over the prospects of the currency bloc even after EU leaders struck a crucial deal last week.
Spain raised the maximum amount at a debt auction on Thursday, but the yield on the 10-year benchmark bond increased. The Spanish Treasury raised a total EUR 3 billion, which met the top end of the EUR 2 billion - EUR 3 billion target set for the sale. It was the first Spanish debt auction after the EU summit last week. The agency placed EUR 747 million of its 5.85 percent January 2022 bond to yield 6.430 percent, which was higher than the 6.044 percent paid at the previous sale on June 7.
The Euro Stoxx 50 index of eurozone bluechip stocks declined by 1.14 percent, while the Stoxx Europe 50 index, which includes some major U.K. companies, gained 0.07 percent.
The DAX of Germany fell by 0.45 percent and the CAC 40 of France finished lower by 1.17 percent. The FTSE 100 of the U.K. increased by 0.21 percent and the SMI of Switzerland gained 0.02 percent.
In Frankfurt, Volkswagen increased by 5.00 percent. The company agreed on a plan with Porsche for the accelerated creation of an integrated automotive group between the two companies. The move is expected take effect as of August 1, 2012.
In Paris, Air Liquide fell by 0.86 percent. The company said it has recently strengthened its position with each of the flat panel market innovation segments, signing multiple contracts and enlarging its gases & services offer.
In London Barclays climbed by 1.30 percent. Moody's Investors Service changed its outlook on the bank's financial strength rating to 'negative' from 'stable'.
Shares of Xstrata Plc rose by 2.95 percent. The company said it has obtained the permission of the Court to adjourn the Court meeting that has been proposed to approve a scheme of arrangement in respect of the recommended all-share merger of equals with Glencore International Plc. Shares of Glencore finished higher by 1.46 percent.
Germany's construction sector continued to shrink in June due to the ongoing weakness in incoming new orders, Markit Economics said Thursday. Although the seasonally adjusted Construction Purchasing Managers' Index rose to 46 from 44.7 in May, the reading suggests contraction in the sector.
Germany's factory orders grew unexpectedly by 0.6 percent in May from a month ago, the Federal Ministry of Economy and Technology said Thursday. Economists were expecting orders to remain flat after easing 1.4 percent in April.
New unemployment claims fell more than expected for the final week of June, according to figures released Thursday by the Labor Department. The DOL calculated that there were a seasonally adjusted 374,000 new claims for unemployment for the week ending June 30.
That marks a notable drop of 14,000 from the previous week's revised figure of 388,000 and comes in well below the 386,000 level predicted by most economists. The previous week's figure was revised up slightly from the 386,000 initially reported.
Private sector employment in the U.S. increased by much more than expected in the month of June, according to a report released by payroll processor Automatic Data Processing (ADP) on Thursday, with the data offsetting recent concerns about the strength of the labor market.
ADP said the private sector added 176,000 jobs in June following an upwardly revised increase of 136,000 jobs in May. Economists had expected private sector employment to increase by about 95,000 jobs compared to the increase of 133,000 jobs originally reported for the previous month.
While the Institute for Supply Management's monthly report on activity in the service sector showed continued growth in the sector in the month of June, the pace of growth slowed by more than economists had been anticipating.
The ISM said its non-manufacturing index fell to 52.1 in June from 53.7 in May, although a reading above 50 indicates continued growth in the service sector. Economists had been expecting the index to edge down to 53.0.
Copyright RTT News/dpa-AFX