ECB Drives Rates Deeper in Negative Territory, Markets Drop

Lucy Stoeva
03 Dec, 2015
New York City

Stock markets declined as ECB extended stimulus, but investor expected more drastic action. Nokia shareholders approved the $17.6 billion acquisition of Alcatel Lucent. Royal Dutch Shell received regulatory clearance for the $70 billion acquisition of BG Group. DS Smith profit plunged 19%.

[R]4:00 PM Frankfurt – Stock markets declined as ECB extended stimulus, but investor expected more drastic action. Nokia shareholders approved the $17.6 billion acquisition of Alcatel Lucent. Royal Dutch Shell received regulatory clearance for the $70 billion acquisition of BG Group. DS Smith profit plunged 19%.[/R]

European bourses abruptly changed direction and headed south in the afternoon, after the European Central Bank announced its decision on economic stimulus, which failed to meet the high expectations of investors.

In a highly anticipated announcement, the ECB said it cuts the overnight deposit rate deeper into negative zone to -0.3% from -0.2%, in an effort to stimulate bank lending.

The central bank is also extending its monthly €60 billion bond-buying program to at least March 2017, or by a minimum of six months.

ECB president Mario Draghi said the bond-buying stimulus, or the quantitative easing program, is successful, but an extension is necessary to deal with the prolonged low inflation.

The inflation is running at 0.1%, significantly below the 2% target set by the central bank,

The main interest rate remains unchanged at a record low of 0.05% and the central bank just lowered rate deeper in negative territory, meaning charging more to banks for parking funds with the ECB.

Following the announcement, the euro surged against the dollar, rising more than two cents to $1.08.

In London trading, FTSE 100 index fell 57.77 or 0.9% to 6,363.16 and in Frankfurt the DAX index lost 286.10, or 2.56%, to 10,903.92.

In Paris, CAC 40 index slid 98.42 or 2.01% to 4,807.34.

Alcatel Lucent SA fell 2.08% to €3.78 after the shareholders of Nokia approved the acquisition of struggling Alcatel Lucent for €15.6 billion.

The deal is expected to be completed in the first quarter of 2016, and after the transaction Nokia will become a market leader in network design and automation.

In Helsinki, shares of Nokia jumped 2.41% on the news.

Consort Medical Plc gained 2% to 1,011 pence after the U.K.-based drugs formulations maker said net profit for the six months ending in October declined 19.2% from a year ago to £5.9 million due to one-time Aesica acquisition costs.

Revenues for the period more than doubled to £135.5 million, compared with £53.6 million a year ago, also due to the acquisition.

The company said it was on target to meet its full-year results and proposed an interim dividend of 6.75 pence per share, up from 6.43 pence a year before.

DS Smith Plc dropped 2.52% to 405.9 pence after the U.K.-based recycled packaging products maker reported revenues in the six months ending in October fell 1% from a year ago to £1.95 billion.

Net profit in the period declined 19.2% from a year ago to £5.9 million and earnings per share decreased to 12 pence from 21.5 pence.

Royal Dutch Shell Plc increased 0.9% to 1,678 pence after the U.K. and Holland based oil and gas producer received approval from Australia''s Foreign Investment Review Board for the company''s proposed $70 billion for acquisition of BG Group Plc.