The European Central Bank surprised investors this afternoon as policymakers pushed back rate expectations and unveiled a fresh round of cheap loans to Euro Zone banks (TLTRO’s). The dovish policy shift, coupled with notably lower growth and inflation forecasts sent the Euro to its lowest level since mid-November while Euro Zone government yields also tumbled. Equity markets initially ticked higher on the announcement but soon began to tumbled with bank stocks leading declines as the details of the new TLTRO were less favourable than many had expected. Bourses are sharply lower at the closing bell with the Euro Stoxx 600 bank index falling over two-percent (FTSE -0.7%, DAX -0.7%, CAC -0.4%). Wall Street followed suit with a lower open as trade tensions and global growth concerns have led to underperformance in the material and industrial sectors. On the data front, US releases were broadly stronger-than-expected with higher readings for Unit Labor Costs and Non-Farm Productivity plus a pullback in initial jobless claims. Elsewhere in FX, Sterling is under pressure with Gbp/Usd falling to new lows after a UK government source said there is nothing at the moment to suggest anything is going to change in Brexit talks with the EU over the next 48-hours, adding that the EU is simply not moving. Still to come today, we await possible comments from Fed Governor Brainard and the Bank of Canada’s Patterson plus US consumer credit.
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