Equities were largely in positive territory this morning, but after a downbeat statement from Mario Draghi traders quickly reversed their positions. Mr Draghi lowered his inflation forecast for the region and warned of downside risks, and he also stated the central bank is ‘technically ready’ to reduce interest rates to below zero.
When the ECB cut interest rates in November, stocks initially rallied. But when traders digested the news, equities began to slide. Dealers are now wondering just how weak the eurozone must be, if interest rates need to be reduced again.
The German and French markets have lost 1.1% and 1% respectively. Both markets are the worst performers in the eurozone. The German equity benchmark has gained 20% year-to-date, so it is not surprising we have seen profit-taking on the back of the comments.
Mario Draghi is due to make an announcement at 8pm on Thursday (London time), and if his outlook is similar to today’s we could see stocks trade lower. As one of IG Analyst noted, if the German market falls below 8942, it could be the beginning of a correction.