European stocks slip after ECB remarks

Shares are offside in the eurozone this morning, after the European Central Bank (ECB) announced that monetary policy will remain loose for an extended period.

The German and French markets are down 0.7% and 0.3% respectively, following ECB president Mario Draghi’s statement that downside risks still exist. He confirmed that he will keep interest rates ultra-low for the foreseeable future. Ordinarily, loose monetary policy would boost equities, but in this case investors are viewing it as an indicator that the eurozone is in trouble and requires a low borrowing cost to stimulate economic activity.

There are some positive signs from the region: more than 90% of economists surveyed by Bloomberg stated the stress-tests of eurozone banks conducted by the ECB will be more credible than the previous exercise. The perceived weakness of some European banks was a major factor in the eurozone crisis.

Ireland is due to exit the bailout scheme on Sunday 15 December, three years after it received funding from the ECB and IMF. If the country’s exit from the programme goes without a hitch, European stocks could open higher on Monday.

The DAX has lost ground in the past few days, and is currently just above the important 9000 level. As one of  IG Analyst stated, a fall below 8942 could represent the early stages of a big correction.

Germany 30 chart

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