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Stocks Fall Sharply After ECB Lowers Economic Growth Forecast - U.S. Commentary


Stocks have moved sharply lower over the course of morning trading on Thursday, extending the downward move seen in the previous session. The Nasdaq and the S&P 500 are pulling back further off the four-month intraday highs set on Monday.

In recent trading, the major averages have climbed off their lows of the session. The Dow remains down 236.24 points or 0.9 percent at 25,437.22, the Nasdaq is down 67.30 points or 0.9 percent at 7,438.62 and the S&P 500 is down 20.61 points or 0.7 percent at 2,750.84.

The sell-off on Wall Street comes after the European Central Bank slashed its economic growth forecast, citing lingering, mainly external uncertainties.

The ECB also said it now expects eurozone interest rates to remain at the current level at least till the end of this year.

The eurozone growth outlook for this year was cut to 1.1 percent from 1.7 percent, while the outlook for next year was trimmed to 1.6 percent from 1.7 percent.

The risks surrounding the euro area growth outlook are still tilted to the downside, on account of the persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets, the ECB said.

"While there are signs that some of the idiosyncratic domestic factors dampening growth are starting to fade, the weakening in economic data points to a sizeable moderation in the pace of the economic expansion that will extend into the current year," said ECB President Mario Draghi.

He added, "The persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets appears to be leaving marks on economic sentiment."

Reflecting the concerns about the economic outlook, the ECB announced steps to preserve favorable bank lending conditions and the smooth transmission of monetary policy.

The ECB said a new series of quarterly targeted longer-term refinancing operations (TLTRO-III) will be launched, starting in September 2019 and ending in March 2021, each with a maturity of two years.

Financial stocks are turning in some of the market's worst performances on the day, with the NYSE Arca Broker/Dealer Index and the KBW Bank Index down by 1.6 percent and 1.1 percent, respectively.

Concerns about global demand are also weighing on the steel stocks, resulting in a 1.5 percent drop by the NYSE Arca Steel Index.

Computer hardware, chemical, and oil service stocks are also seeing notable weakness, moving lower along with most of the other major sectors.

In overseas trading, stock markets across the Asia-Pacific region turned in another mixed performance on Thursday. Japan's Nikkei 225 Index dropped by 0.7 percent, while China's Shanghai Composite Index inched up by 0.1 percent.

Meanwhile, the major European markets have all moved to the downside. While the German DAX Index has slumped by 1.1 percent, the U.K.'s FTSE 100 Index is down by 0.9 percent and the French CAC 40 Index is down by 0.7 percent.

In the bond market, treasuries have moved notably higher amid the sell-off on Wall Street. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 4 basis points at 2.652 percent.

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