U.S. equity markets bounced between sharp gains and losses on Thursday amid renewed pressure in the oil patch, and as traders digested the latest policy move from the European Central Bank.
Continue Reading Below
The Dow Jones Industrial Average was 4 points higher, or 0.03% to 16995. The S&P 500 added a fraction of a point, or 0.02% to 1989, while the Nasdaq Composite slipped 12 points, or 0.26% to 4662.
Industrials and health care were the biggest decliners on the session, while telecom and materials led.
Markets in the U.S. were pulled in two directions as global oil prices saw steep declines and traders parsed a monetary policy decision from the European Central Bank.
Global oil prices saw sharp declines after a media report said a rumored meeting among oil producers to discuss a production freeze at January levels is unlikely to happen later this month. The idea of an output freeze was floated last month by Venezuela, Russia, Saudi Arabia, and Qatar, but focus has remained on Iran – arguably a nation to see production levels increase substantially this year – which has stayed mum on whether it would join the pact. Sources told Reuters only when Iran agrees to come to the table will a deal be possible.
Continue Reading Below
On the news, West Texas Intermediate crude prices dropped more than 2% before recovering a bit of ground to settle down 1.18% to $37.84 a barrel. Brent crude prices shed 2.48% to $40.05 a barrel.
Metals were mostly higher as gold prices added 1.32% to $1,274 a troy ounce. Silver added 1.46% to $15.59 an ounce, while copper declined 0.45% to $2.22 a pound.
In recent action, the yield on the U.S. 10-year Treasury bonds gained 0.051 percentage point to 1.943%. Yields move in the opposite direction of prices.
Elsewhere, early Thursday, the ECB announced it would expand its monetary stimulus efforts. The central bank cut its benchmark interest rate further into negative territory by 0.10% to -0.40%, which means banks will continue to have to pay the ECB to hold onto their deposits. Meanwhile, the central bank slashed its refinancing rate to zero from 0.05%, while the marginal lending rate was lowered to 0.25% from 0.30%.
In addition, the ECB expanded its quantitative easing program, in which the central bank buys government bonds and other securities, by 20 billion euros to 80 billion euros a month. The QE program was also expanded to include investment-grade corporate bonds, rather than just bank bonds.
ECB President Mario Draghi, in a press conference following the policy decision, said rates will stay “very low” for a long period of time and “well past” the horizon of the central bank’s purchases. Still, he said he didn’t anticipate that it would be necessary for the ECB to reduce rates further into negative territory, though “facts can change the situation and outlook.”
In the wake of Draghi’s comments, the euro sharply reversed declines of more than 1%, rising 1.26% against the U.S. dollar, as European equities followed suit. The Euro Stoxx 50, which tracks large-cap companies in the eurozone, reversed gains of more than 2% to close down0.49%. The German Dax slid 1.44%, while the French CAC 40 declined 0.70%, and the UK’s FTSE 100 shed 1.06%.
Peter Kenny, senior market strategist at Global Markets Advisory Group, said it’s important to keep in mind the need for the central bank to continue stimulating the economy, and how it can move forward from here.
“The EU is really in a position where there is no other driver of global growth. They need as much accommodation and facilitation as possible,” he said.
While ECB President Mario Draghi has insisted tools remain in the box to continue efforts to spur consumers to spend and investors to feel confident, Kenny said beyond cutting rates and expanding QE, there’s not much more than can be done.
“The lack of confidence is really what the ECB is trying to not only tackle, but overcome. Trying to get people to think differently about their future and how they can confidently spend more money…Draghi has done an extraordinary job keeping this thing afloat, but the primary reason is he convinced people they do have other tools. It’s worrisome,” he said.
Elsewhere, investors in the U.S. kept an eye on a trickle of economic data. Weekly jobless claims dropped more than expected last week. Data from the Labor Department showed the number of Americans filing for first-time unemployment benefits fell to 259,000 from a downwardly revised 277K the week prior. Wall Street expected claims to fall to 275,000 from an initially reported 278,000.