Stocks flat after ECB cuts rate, extends stimulus – USA TODAY

Trader Andrew Silverman, center, works on the floor of the New York Stock Exchange, Wednesday, Dec. 2, 2015. (AP Photo/Richard Drew)(Photo: AP)

U.S. stocks, which slumped Wednesday on rate hike fears in the U.S., are flat in early trading Thursday after the European Central Bank cut rates and extended a stimulus package.

The closely watched move in Europe comes just a day after the head of the Federal Reserve reiterated that the U.S. central bank was leaning towards hiking borrowing costs this month for the first time in nearly a decade.

The ECB, led by Mario Draghi, announced at 7:45 a.m. ET that it will be cutting interest rates further into negative territory from -0.2% to -0.3%. Many investors were expecting an even bigger rate cut. An hour later, Draghi also said its bond-buying program will be extended in an effort to jumpstart growth and fight dangerously low inflation.

“Market expectations of ECB policy action are high,” Barclays told clients in a research note.

The ECB’s moves to boost stimulus contrasts with the direction the Fed, which is moving closer to pushing raising rates higher amid an improving job market.

Yesterday, the Dow Jones industrial average fell nearly 160 points, as traders adjusted to the prospects of higher rates as well as another steep drop in U.S. crude prices, which dropped below $ 40 a barrel for the first time since August.

Markets are bracing for the potential fallout from what Wall Street experts are calling “policy divergence,” code words for the different directions that the Fed and ECB are moving in terms of support for markets.

Wall Street is also a day away from the November employment report. If the U.S. economy continued to create jobs at a solid pace last month, after producing a better-than-expected 271,000 jobs in October, it will virtually cement a Fed rate hike on Dec. 16, barring any shocks between now and then.

European stocks were hammered by the ECB decision on rates and stimulus. The broad Europe Stoxx 600 is off 1.8%, the German DAX is cratering 2.2% and the CAC 40 in Paris is plunging 1.7%.

Oil prices, which tumbled sharply Wednesday, were also higher, with a barrel of U.S. crude up 59 cents, or 1.5%, to $ 40.53.

Oil investors will be closely watching Friday’s meeting of the Organization of the Petroleum Exporting Countries for any signs that OPEC is considering a daily production cut in the face of a supply gut.

Read or Share this story: http://usat.ly/1XJCvX3