European Central Bank signals rate cut, U.S. stocks dip

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While there was plenty of activity in the markets today in specific sectors like biotech, U.S. stocks as a whole fell on Thursday after the European Central Bank suggested that it’s preparing to cut key interest rates for the first time in over three years.

The Dow Industrial Average fell by 128.99 points, or 0.5 percent, while the S&P 500 declined by 15.89 points, or 0.5 percent as well. The tech-based NASDAQ slid by a bit more, down 1%, in response to the news.

Specifically, the ECB signaled that it is preparing to cut rates as well as potentially restart its massive bond-buying program in a change of monetary policy to help buffer the eurozone’s economy. The announcement follows a similar move from the Federal Reserve, which is set to cut rates for the first time in a decade sometime next week. At the same time, central banks across Asia and South Africa have lowered borrowing costs earlier this month as well.



The president of the ECB, Mario Draghi, suggested that a looser policy was likely if inflation numbers don’t change. “We see evidence that the global economy is in a slow-growth mode with weakness in Europe, Japan and emerging markets,” commented Terry Sandven, chief equity strategist at U.S. Bank Wealth Management, according to The Wall Street Journal. “That provides support for central banks around the world to continue with a dovish easing policy.”

Overall, public sentiments among economist and Wall Street is that weaker economic growth is on the horizon, and central banks are doing their best to mitigate this decline. Should a recession occur, which in many ways one is quite overdue with the U.S. being technically in a bull market for over a decade, central bankers want to make a decline as soft and gentle as possible.

At the same time, earnings expectations for this quarter in the U.S. were particularly negative, but ended up coming in better than otherwise expected, with general results indicated that the economic situation might not be as dire as some central banks are worrying about.

However, the same can not be said for Europe, where interest rates have been held near zero for years to help stimulate growth before eventually raising them gradually. Mario Draghi warned that while there were some bright spots in the eurozone economy, the “outlook is getting worse and worse,” especially for the continent’s manufacturing.

In particular, the central banker blamed the ongoing trade tensions between the U.S. and China, as well as the looming possibility of a hard Brexit in light of the recent change in the British Prime Minister.

Should the ECB not initiate any stimulus in the near future, then that would mean the central bank would likely end up opting for a more drastic course of action later this year. In response to the news, the price for Euros hit a two-year low, while stocks in both the U.S. as well as in Europe slid significantly. The German Dax benchmark fell by over one percent today, reacting worse then it’s American counterparts and for good reason.

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