Draghi Warns of Risks to Recovery, US Markets Fall as International Tensions Rise
August 8, 2014 7:52 am
European stock markets were pressured on Friday by falls across US and Asian markets overnight as rising tensions over Ukraine overshadowed signs of a recovery in the US economy. The FTSE is down around 0.8%, the DAX is down by 1.1% and the CAC is down by 0.25%
At the same time, Middle East tensions remain high but with more focus on Iraq as the Obama administration prepared plans for airstrikes against Islamic militants in the north part of the country. The sudden acceleration of US military activity reflects White House concern over an escalating crisis in the Kurdish region of Iraq as militants pressed an offensive against local forces, seizing areas long considered safe.
Traders also remain worried about Russia hitting back against US and European sanctions by banning some western food imports, with concern that President Vladimir Putin could escalate the crisis by invading Ukraine. Russia has massed troops on its border with Ukraine – traders are watching the situation carefully.
On Thursday, European Central Bank President Mario Draghi said the risks to a recovery from conflicts including that in Ukraine are increasing. Headwinds facing the 18-nation Euro area’s recovery are intensifying after Italy slipped back into recession and the standoff between Russia and the US and its allies escalated into the worst such conflict since the Cold War.
Draghi also stated that large-scale asset purchases are an option for dealing with a severe economic shock, leaving investors seeking clarification on what the trigger could be. The ECB left the main refinancing rate at 0.15%, as predicted by the markets.
The deposit rate and the marginal lending rate remained at -0.1% and 0.4%, respectively. The euro weakened against the dollar and traded at $1.3353 on Thursday near the lowest level in nine months.
In Asia, Japan’s Topix index fell 1.1% as the nation’s central bank concludes a policy meeting today. South Korea’s Kospi index declined 0.3%. Australia’s S&P/ASX 200 Index declined 0.4% and New Zealand’s NZX 50 Index slipped 0.2%. China’s stocks rebounded, sending the benchmark index toward a fourth week of gains, after export growth unexpectedly accelerated. A gauge of mainland-traded shares in Hong Kong pared losses. Meanwhile, as exports from Japan falter, the current account balance – a wide measure of trade – produced a deficit of—Y399bn in June, wider than forecasts at -Y326bn.
In May, the current account produced a surplus of Y522.8bn. On Thursday in the US, stock markets fell with the Dow Jones Industrial Average closing at its lowest level since April, as concern that the Ukraine conflict is escalating offset better-than-estimated earnings and a drop in weekly jobless claims.
The Standard & Poor’s 500 Index fell 0.6% to 1,909.57 while the Dow dropped 75.07 points, or 0.5% to 16,368.27, close to its 200-day moving average. As such, the Chicago Board Options Exchange Volatility Index, which usually moves in the opposite direction to the S&P 500, rose 1.8% to 16.66 during the session. The VIX soared 34% last week, the most since January.
The weakness in markets came despite data showing fewer Americans filing applications for unemployment benefits last week, sending the average over the past month to an eight-year low – that’s a sign the labour market continues to gain momentum.
The better weekly jobs data lifted sentiment after last week’s nonfarm monthly payrolls data showed companies in the US added more than 200,000 jobs for a sixth straight month in July, the longest such period since 1997.
European stock markets were pressured on Friday by falls across US and Asian markets overnight as rising tensions over Ukraine overshadowed signs of a recovery in the US economy. The FTSE is down around 0.8%, the DAX is down by 1.1% and the CAC is down by 0.25%
At the same time, Middle East tensions remain high but with more focus on Iraq as the Obama administration prepared plans for airstrikes against Islamic militants in the north part of the country. The sudden acceleration of US military activity reflects White House concern over an escalating crisis in the Kurdish region of Iraq as militants pressed an offensive against local forces, seizing areas long considered safe.
Traders also remain worried about Russia hitting back against US and European sanctions by banning some western food imports, with concern that President Vladimir Putin could escalate the crisis by invading Ukraine. Russia has massed troops on its border with Ukraine – traders are watching the situation carefully.
On Thursday, European Central Bank President Mario Draghi said the risks to a recovery from conflicts including that in Ukraine are increasing. Headwinds facing the 18-nation Euro area’s recovery are intensifying after Italy slipped back into recession and the standoff between Russia and the US and its allies escalated into the worst such conflict since the Cold War.
Draghi also stated that large-scale asset purchases are an option for dealing with a severe economic shock, leaving investors seeking clarification on what the trigger could be. The ECB left the main refinancing rate at 0.15%, as predicted by the markets.
The deposit rate and the marginal lending rate remained at -0.1% and 0.4%, respectively. The euro weakened against the dollar and traded at $1.3353 on Thursday near the lowest level in nine months.
In Asia, Japan’s Topix index fell 1.1% as the nation’s central bank concludes a policy meeting today. South Korea’s Kospi index declined 0.3%. Australia’s S&P/ASX 200 Index declined 0.4% and New Zealand’s NZX 50 Index slipped 0.2%. China’s stocks rebounded, sending the benchmark index toward a fourth week of gains, after export growth unexpectedly accelerated. A gauge of mainland-traded shares in Hong Kong pared losses. Meanwhile, as exports from Japan falter, the current account balance – a wide measure of trade – produced a deficit of—Y399bn in June, wider than forecasts at -Y326bn.
In May, the current account produced a surplus of Y522.8bn. On Thursday in the US, stock markets fell with the Dow Jones Industrial Average closing at its lowest level since April, as concern that the Ukraine conflict is escalating offset better-than-estimated earnings and a drop in weekly jobless claims.
The Standard & Poor’s 500 Index fell 0.6% to 1,909.57 while the Dow dropped 75.07 points, or 0.5% to 16,368.27, close to its 200-day moving average. As such, the Chicago Board Options Exchange Volatility Index, which usually moves in the opposite direction to the S&P 500, rose 1.8% to 16.66 during the session. The VIX soared 34% last week, the most since January.
The weakness in markets came despite data showing fewer Americans filing applications for unemployment benefits last week, sending the average over the past month to an eight-year low – that’s a sign the labour market continues to gain momentum.
The better weekly jobs data lifted sentiment after last week’s nonfarm monthly payrolls data showed companies in the US added more than 200,000 jobs for a sixth straight month in July, the longest such period since 1997.
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