(Bloomberg) -- For global financial markets, central-bank stimulus just isn’t what it used to be.
Stocks in Europe retreated with government bonds, while the euro rallied to its strongest level in almost a month as investors looked past an unprecedented boost to European monetary policy to focus on rising anxiety that policy makers have lost the ability to jump-start global growth and stave off deflation.
After swinging at least 0.8 percent in both directions, the Standard & Poor’s 500 Index ended Thursday little changed amid speculation the selloff had gone too far too quickly after the European Central Bank reduced three key interest rates and expanded bond purchases. The European benchmark fell 1.7 percent as President Mario Draghi signaled further rate cuts aren’t likely, damping enthusiasm for the move. U.S. oil fell below $38 a barrel, providing a reminder that commodity prices remain at levels inconsistent with rising inflation. Treasuries slid, pushing yields to the highest level in more than a month.
From the Federal Reserve’s quantitative easing that underpinned the seven-year bull market in U.S. equities to the negative rates in Europe that fueled rallies in government bonds, unorthodox central bank stimulus has supported assets around the world ever since the depths of the global financial crisis. On Thursday, markets took less than 90 minutes to go from being overwhelmed by the extent of the latest measures to shrugging off the moves aimed at reviving expansion and price growth in the euro area.
“The bottom line is that monetary policy has had less of an effect lately in terms of driving capital asset prices,” said Ernie Cecilia, chief investment officer at Bryn Mawr Trust Co., which oversees $8.5 billion in Bryn Mawr, Pennsylvania. “At some point we’ll need to see something deeper than that. We need to see revenue and earnings growth in the corporate sector, and less stringent fiscal policies, particularly in the U.S.”
Stocks had rallied, while the euro retreated in the weeks leading up to the ECB decision, amid speculation any additional moves would spark gains in riskier assets. That sentiment got a boost from stability in oil prices and an improvement U.S. data, though signs of weakness persisted in readings on American manufacturing and European prices. Draghi’s indication that further rate cuts aren’t likely added to concern that central banks may be nearing the limits of their effectiveness.
“His comment was ‘no more stimulus,’ but how often has a central bank said that? A lot,” Steve Wruble, chief investment officer at Portland, Oregon-based RiskX Investments, said by phone. “It’s a crappy global economy with all uncharted territory, and no one’s got a solid view.”
The S&P 500 rose less than 0.1 percent as of 4 p.m. in New York, paring back a drop of as much as 1 percent as the Nasdaq Composite Index fell 0.3 percent. Carmakers and mining stocks led the Stoxx Europe 600 Index’s decline, while emerging-market shares halted a two-day drop, rising 0.4 percent.
“The euro zone isn’t great and that’s part of the reason why Draghi has done what he’s done” Peter Cecchini, co-head of equities and chief market strategist at Cantor Fitzgerald in New York, said by phone. “The underlying fundamentals that caused him to do this are not good.”
While mining companies and telephone shares were among the S&P 500’s gainers Thursday, energy producers fell as oil retreated from a three-month high. JPMorgan Chase & Co. slipped 0.9 percent as banks declined for a fourth day, while Microsoft Corp. dropped 1.5 percent, weighing on the technology group after its two-day rally.
Investors will now shift focus to the Federal Reserve meeting next week for cues on the the path of benchmark rates in the U.S., where officials are diverging from their global counterparts in tightening policy.
The euro advanced against the dollar, reversing an earlier drop to climb 1.7 percent to $1.1182. The 19-nation currency earlier swung between a 1.6 percent decline and a 2 percent gain, its widest intraday range since the ECB’s last meeting Dec. 3. The euro rose 1.5 percent to 126.51 yen.
“ECB members have been saying negative interest rates are working but if they were, then why did they have to do this bazooka they just did,” Andrew Brenner, head of international fixed income at National Alliance Capital Markets in New York, said by phone. “They’ve realized that negative rates don’t work and it doesn’t help the economy.”
The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, declined 0.5 percent in its eighth drop in nine days.
Bill Gross says it’s the “end of the line” for negative rates in Europe, and global bond markets appear to agree. Euro- area government bonds erased an initial surge that was sparked by the ECB unexpectedly cutting all its key rates and expanding its monthly debt purchases.
The global monetary policy door is “closing fast -- developed market yields have bottomed,” Gross, manager of Janus Capital Group Inc.’s $1.3 billion Janus Global Unconstrained Bond Fund, wrote in a tweet. In another post, he said the ECB policy moves were “actually more fiscal than monetary” and marked the end of the line for rates moving below zero.
Yields on 10-year Treasury notes rose six basis points, or 0.06 percentage point, to 1.93 percent, according to Bloomberg Bond Trader data. Rates on Spanish debt due in a decade initially dropped the most in five months with the ECB decision boosting peripheral debt relative to the higher-rated peers. Officials cut the central bank’s deposit rate by 10 basis points to minus 0.4 percent, and its main refinancing rate to zero.
The ECB will now buy investment-grade euro-denominated bonds issued by non-bank corporations established in the euro area. The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies fell as much as 12 basis points to 80 basis points. A gauge of swaps on junk-rated corporate issuers declined as much as 39 basis points to 336 basis points. Both indexes are at the lowest since early January.
Oil retreated amid uncertainty over when a meeting between Saudi Arabia, Russia and other producers to freeze output will occur as Iran seeks to rebuild its exports. West Texas Intermediate crude for April delivery fell 1.2 percent to $37.84 a barrel in New York. The contract settled at $38.29 on Wednesday, its highest close since Dec. 4.
Gold futures capped their first gain in four days as the dollar fell and the ECB flagged risks to the region’s growth outlook, boosting demand for bullion as a store of value. Gold is up 19 percent this year as demand for havens surges with gyrations in financial markets. Futures for April delivery added 1.2 percent Thursday to $1,272.80 an ounce.
--With assistance from Oliver Renick, Lucy Meakin, Alexandra Scaggs and Moming Zhou.
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