Asia sinks as ECB disappoints investors

HONG KONG: Asian markets tumbled yesterday, in line with a global sell-off, while the euro held most of its earlier gains after the European Central Bank’s revised economic stimulus measures came up short.

Speculation has swirled for weeks that the ECB would ramp up its bond-buying programme and further loosen monetary policy to inject some vim into a euro-zone beset by years of torpid growth and stagnant inflation.

The bank cut deposit rates further into negative territory -- meaning lenders must pay to park cash with it and so look to l oan more -- and extended the length of its bond purchases.

However, the long-awaited announcement was seen as a huge let-down as it crucially failed to increase the size of the stimulus while the rate cut was less than hoped for.

“The market was hoping for some Draghi magic, but instead got some Draghi shock,” Mitsuo Shimizu, deputy general manager at Japan Asia Securities Group in Tokyo, told Bloomberg News.

“I’d thought that for a recovery in the European economy we’d need some bold easing measures, but since Draghi seems to be taking the economic recovery lightly, it’s possible that it could take a turn for the worse for some time.”

The news sent the euro surging more than three percent against the dollar and 2.6% against the yen.

The single currency had come under fierce selling pressure leading up to the announcement -- hitting a seven-month low against the greenback this week -- as dealers positioned themselves for more far-reaching measures.

And yesterday the single currency edged down but maintained most of those advances.

Asian stock markets were all in the red, with Tokyo ending down 2.2%, Shanghai shedding 1.7% and Sydney 1.5% lower. Hong Kong was 0.8% off by the end.

The losses followed hefty falls in Europe and New York. Paris and Frankfurt plunged 3.6% each and London lost more than 2%, while Wall Street’s three main indexes shed between 1.4% and 1.7%.

The euro’s gains were also given support after Federal Reserve boss Janet Yellen said the bank remained wary of a US interest rate rise because of concerns about a strong dollar and other central banks’ loose monetary policies.

While the Fed is still widely expected to lift rates this month -- for the first time in nine years -- Yellen’s comments caused traders to baulk after a recent run-up in the dollar.