European stocks fall after ECB-led rally

European stocks were sharply lower on Friday (September 4th), retreating from the gains posted in the previous session following the European Central Bank (ECB) policy meeting.

The DAX was down more than two per cent in morning trading, while the Euro Stoxx 50 shed 2.1 per cent as markets pulled back from the ECB-led rally on Thursday. Stock futures trading in the US pointed to a lower open on Wall Street.

European shares had risen strongly after ECB chief Mario Draghi signalled the bank is ready to expand the scope of its €60 billion-a-month quantitative easing programme.

The bank lowered its growth and inflation forecasts for the 19-nation eurozone, citing lower oil prices and weaker growth in China as key downside risks.

US stocks were also boosted by the ECB’s dovish statement, with the Dow Jones closing up 23.38 points at 16,374.76 and the S&P 500 rising 0.1 per cent to finish 1,951.13 after both had posted strong gains on Wednesday.

However, the mood turned darker overnight in Asia, as the Nikkei 225 in Japan touched on a seven-month low as it tumbled by up to three per cent on a stronger yen.

Following the ECB announcement, the euro took a steep dive against its major peers, shedding one per cent versus the US dollar to touch a two-week low. EUR/USD pared losses on Friday, however, to trade at 1.1139.

The single currency hit a 15-month low against the yen and dropped by 0.75 per cent against the pound. Sterling couldn’t hold on to the gains, with EUR/GBP rising 0.4 per cent to 0.7318.

Investors were looking ahead to the key US non-farm payrolls data later on Friday, as it could give a strong indication as to whether the Federal Reserve will hike interest rates this month.

Oil prices slipped lower, with Brent crude shedding 0.5 per cent to trade just above $50 a barrel. In New York, US light crude slipped 0.75 per cent to $46.39 a barrel.