Cheap Loans for Everyone! U.S. Stocks Plunge After ECB Admits Defeat
The Dow and broader U.S. stock market declined sharply on Thursday after the European Central Bank (ECB) unveiled new stimulus measures to avert economic stagnation in the Eurozone. The move comes less than three months after the ECB put an end to its $2.9 trillion bond-buying program.
Dow Records Fourth Straight Drop
All of Wall Street’s benchmark indexes finished lower on Thursday, with the Dow Jones Industrial Average falling 200.23 points, or 0.8%, to close at 25,473.23. The blue-chip index was down by as much as 321 points.
The broad S&P 500 Index of large-cap stocks fell 0.8% to 2,748.93. A total of nine primary sectors reported losses, with the consumer discretionary component leading the declines. Financials, information technology and communication services also fell sharply.
The technology-driven Nasdaq Composite Index plunged 1.1% to 7,421.46.
The CBOE Volatility Index, commonly known as the VIX, rose 6.9% to 16.82 on a scale of 1-100 where 20 represents the historic average. That was the highest settlement since late January.
More pain in store for Wall Street. Read: Does this Chart Spell Doom for the S&P 500 Index?
ECB: Cheap Loans for Everyone
The ECB is once again loosening the screws on monetary policy in the form of low interest rates and cheap credit. On Thursday, ECB President Mario Draghi unveiled a new plan that would see the central bank hold interest rates at current levels through the end of the year, which is longer than previously signaled. Banks will also receive a new back of cheap long-term loans with a maturity of two years. The new loan program will begin in September.
After a fairly robust 2017, the Eurozone economy has faltered in the last year with growth slowing to a crawl. The European Commission confirmed on Thursday that the Eurozone’s gross domestic product (GDP) expanded just 0.2% in the fourth quarter, up slightly from 0.1% in Q3. The economy expanded just 0.4% in each of the previous two quarters, well below the previous year’s quarterly average.
ECB officials have essentially admitted that the Eurozone cannot sustain any sort of policy normalization as both core and peripheral nations show signs of stagnation. Analysts quoted by The Wall Street Journal said they were very surprised by the new series of measures.
OECD Lowers Global Growth Outlook
The Organization for Economic Cooperation and Development (OECD) has lowered its growth target for almost every nation in the Group of 20, sending a strong signal that the global economy was headed for a synchronized downturn. The Paris-based institution announced Wednesday that it now expects global GDP to expand 3.3% this year compared with the previous forecast of 3.5%.
The nations affected most by the downgrades were Italy, Germany and Canada. For the Eurozone as a whole, the 2019 growth target was revised down by 0.8 percentage point.
OECD analysts downgraded their outlook more severely than the International Monetary Fund (IMF), which slashed its forecast in January. At the time, the IMF cited a U.S.-China trade war as one of the biggest factors affecting global growth.
Featured image courtesy of Shutterstock. Chart via Stockcharts.com.