European stock markets took their cue from the heavy selloffs in the US and Asia to open lower Thursday as bigger picture concerns about the US economy reasserted themselves.
Fast rising interest rates and the first signals of a slowing economy combined with a potentially protracted trade conflict with China and increased regulation constricting the high flying FANG stocks took their toll on US shares. The positive momentum seen in the DJIA only a few weeks ago seems to have completely evaporated as the index dropped more than 600 points on the day. Over the last few trading sessions the Dow and the S&P 500 declined so sharply that all of their gains for this year have been erased.
Mario Draghi’s unenviable position
ECB President Mario Draghi will be in an interesting position later today when he is due to hold a news conference following the meeting of the bank’s monetary policy makers. The former Bank of Italy governor who was a proponent of Italy following the EU’s fiscal rules is likely to face questions about his country’s budget plans for next year which are in clear breach of those same rules. The European Commission has already slapped Italy’s lawmakers’ wrists asking for a rewrite of the budget in the next three weeks. The markets will be keen to hear if the ECB may use any purchases to prop up Italy’s failing bond market and about any plans to ensure sufficient liquidity for Italy’s banks.
Oil drops despite looming Iran sanctions
Brent crude dipped to just under $76 despite looming Iran sanctions as a selloff in US and Asian stocks triggered concerns about a corresponding decline in oil demand. Although part of the decrease from the heady level of $86 earlier this month was triggered by Saudi Arabia indicating that it would raise production should the sanctions start causing any supply deficit for Western buyers, fear and anxiety about the global economy are currently playing a bigger role in the oil price than the actual fundamentals of supply and demand.
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