European stocks retreat on ECB policy fears

London / AFP

European stock markets retreated on Wednesday on speculation that the ECB is mulling plans to taper its vast economic stimulus that aims to prop up the eurozone economy.
The European Central Bank has rebutted a Bloomberg report on Tuesday of an “informal consensus” among ECB policymakers that the guardian of the euro should gradually scale back its quantitative easing (QE) bond-buying stimulus programme in steps of 10 billion euros ($11.2 billion).
The ECB on Wednesday insisted that policymakers had not even discussed such a move.
“Governing Council has not discussed these topics, as (ECB president Mario) Draghi said at last press conference and during testimony at European parliament,” tweeted ECB media relations chief Michael Steen.
Stock market sentiment was dampened also by mounting expectations that the US Federal Reserve will hike interest rates soon.
In Frankfurt equities fell by 0.4 percent in value and by 0.3 percent in Paris in afternoon trading, while London dropped 0.5 percent compared with Tuesday’s close.
Wall Street opened on the upside, with the Dow adding 0.4 percent, as investors looked past to a small slowdown in the pace of hiring in September to rising oil prices.

Pound extends slump
The dollar pushed on with this week’s rally against most other global currencies, scoring another 31-year high against the beleaguered pound. Early Wednesday, sterling dived to $1.2686 — last seen in June 1985 — as the unit remained dogged by Brexit fears. Sterling also hit 88.43 pence to the euro — the weakest level in five years. “European equity markets are on the back foot as concerns grow that central banks are going to pare back accommodative policy,” said Rebecca O’Keeffe, head of investment at stockbroker Interactive Investor.
“Both equity and bond market valuations have been founded on monetary support from global central banks and have arguably become hooked on quantitative easing and low interest rates.
“The possibility of central banks returning to a more normal regime could see taper tantrums resume, volatility spike and investors flee,” she added.
Investors were given a weak lead from Wall Street after comments from two top Federal Reserve officials fanned speculation it would lift borrowing costs before the end of the year.
Talk of an increase returned after data last week showed US factory activity rebounded in September, while trading floors gear up ahead of a crucial jobs report Friday.
On Tuesday, Cleveland Fed president Loretta Mester said she saw a strong case for a rate hike in November. That was followed by Richmond Fed head Jeffrey Lacker, who said a rise was needed to avert a surge in inflation that could lead to sharp rate hikes later.

Era of cheap cash over?
The news from Europe and the United States comes as analysts warn the years of cheap cash are likely coming to an end, with the US economy picking up.
On the upside, Tokyo stocks rose as the weaker yen boosted exporters. Hong Kong was buoyed by recent upbeat China data and the impending opening of a link-up with the Shenzhen stock exchange that could see fresh funds flood in.
However, most other Asian markets struggled.
Europe’s indices had charged higher on Tuesday, with London soaring after Prime Minister Theresa May pledged to kick start the two-year process to leave the European Union by the end of March. The announcement sparked a steep tumble in the value of the pound that has not yet abated.
The stronger dollar also sent gold tumbling on Wednesday to $1,266.69 per ounce, its lowest level since late June.
The rising greenback makes dollar-priced commodities more expensive for buyers using weaker currencies. In turn, that tends to weigh on demand and dent prices.