March 29, 2024

Markets Edge Lower Ahead of European Summit

Stocks edged lower Thursday as officials gathered in Brussels for negotiations on resolving the euro crisis and after the European Central Bank cut its main interest rate target.

In morning trading on Wall Street, the Dow Jones industrial average fell 0.5 percent after a 0.4 percent rise on Wednesday. The Standard Poor’s 500-stock index slipped 0.7 percent, and the Nasdaq composite index was down 0.5 percent. European stocks were down about 1 percent.

Earlier Thursday, the European Central Bank cut its benchmark interest rate for the second month in a row and radically expanded the emergency funding it provides to cash-starved banks.

But Mario Draghi, president of the central bank, indicated in a news conference that he was cautious about future bond purchases, and yields on Italian and Spanish bonds rose after his remarks. The yield on 10-year Italian bonds climbed 28 basis points to 6.28 percent, and Spanish yields advanced 23 basis points to 5.66 percent.

Standard Poor’s said late Wednesday that it was putting the credit ratings of the entire 27-nation European Union on watch for a possible cut from its top AAA rating, citing “concerns about the potential impact on these member states of what we view as deepening political, financial, and monetary problems within the euro zone.”

The action, of mainly technical interest since the bloc itself does not issue debt on a large scale, came after the agency on Monday put 15 of the 17 euro member nations on watch for downgrade, meaning all of the euro zone countries face ratings cuts — and potentially higher borrowing costs — if the crisis meetings fail.

“A bit of pressure is not unwelcome,” Jean-Claude Juncker, the Luxembourg prime minister who acts as head of the Eurogroup, said on French radio regarding the S.P. action, according to Reuters. Still, he said, “the pressure would have existed even if there hadn’t been these warnings from the agencies.”

At their two-day summit meeting, European leaders are expected to consider proposals for tougher fiscal rules from the German chancellor, Angela Merkel, and President Nicolas Sarkozy of France.

José Manuel Barroso, the president of the European Commission, sought to instill confidence that a solution would be found, saying: “I believe this is possible,” according to The Associated Press.

“My appeal — my strong appeal — to all the heads of state and government is to show this commitment to our common currency,” Mr. Barroso said. “I think this is indispensable, and leadership is about making possible what is indispensable.”

Mr. Barroso was in Marseille along with Mr. Sarkozy and Mrs. Merkel for a meeting of the European People’s Party, the conservative bloc in the European Parliament. They were all to leave later for Brussels for the start of the summit meeting.

The monetary authorities are equally in the spotlight. The Federal Reserve joined with major central banks last week to increase dollar liquidity in global markets, and the European Central Bank has comes under increasing pressure to act.

“Tougher rules that will be policed better than before can indeed prevent future fires,” Holger Schmieding, chief economist at Berenberg Bank in London, wrote in a note. “But they cannot douse the flames that are consuming the European house at the moment. For that, the fire brigade, the E.C.B., would finally have to stop lecturing the world about how to prevent future fires and get out to actually extinguish the current one.”

In its second monetary easing in just five weeks, the E.C.B. cut its main overnight rate by a quarter of a percentage point, to 1 percent. The Bank of England’s Monetary Policy Committee, which also met Thursday, left the main British overnight rate unchanged at 0.5 percent.

Mr. Schmieding said central bank actions would come to naught without credible action on the political front.

“Unless the euro zone can convince global investors that Italian and Spanish bonds are not toxic (and that Austrian, French and German bonds are not at risk of turning toxic), no amount of E.C.B. liquidity support for banks can stop the vicious circle into which the euro zone has pushed itself,” he wrote.

In afternoon trading, the Euro Stoxx 50 index, a barometer of euro zone blue chips, fell 1.8 percent, while the FTSE 100 index in London lost 0.3 percent.

The euro rose after the central bank lowered its interest rate, but then slumped. It was trading at $1.3305 from $1.3412 late Wednesday in New York, and the British pound fell to $1.5627 from $1.5710. The dollar fell to 77.50 yen from 77.68 yen, but rose to 0.9222 Swiss franc from 0.9236 franc.

German 10-year bonds were trading to yield 2.14 percent, up 4 basis points, while equivalent United States Treasury securities were at 2.09 percent, up 6 basis point. A basis point is one-hundredth of a percent.

Asian shares declined. The Tokyo benchmark Nikkei 225 stock average fell 0.7 percent. The Sydney market index S.P./ASX 200 fell 0.3 percent. InHong Kong, the Hang Seng index fell 0.7 percent and inShanghai the composite index fell 0.1 percent.

United States crude oil futures fell 1.6 percent to $98.88 a barrel. Comex gold futures fell 1.3 percent to $1,717.90 an ounce.

 

Article source: http://feeds.nytimes.com/click.phdo?i=70020192bc05a8f7b8038805e26be93f

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