World shares down as ECB also disappoints

Trader Gregory Rowe, left, and specialist Peter Giacchi work on the floor of the New York Stock Exchange. Photo / AP

A day after the US Federal Reserve provided investors with reassurances but little immediate action, the European Central Bank also disappointed markets by doing the same.

Hopes had been high after ECB President Mario Draghi's comments last week that the central bank will do "whatever it takes" to preserve the euro. However, Draghi today simply reiterated the possibility of buying Italian and Spanish government bonds to ease borrowing costs, without further details. He said he needs more time.

"The Governing Council ... may undertake outright open market operations of a size adequate to reach its objective," Draghi told a news conference after the ECB's monthly meeting. Further details aren't expected until September.

"The market was looking for a big bazooka from Draghi, and they were disappointed by the lack of a coherent plan," Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York, told Bloomberg News. "A timetable and a start date would comprise meat on the bones. The market wanted a plan and they got a framework, and the reaction was ultra-negative."

Stocks on both sides of the Atlantic fell as a result, as did commodities, the euro and bonds of euro-zone countries that are considered at risk of needing international financial assistance, especially Spain and Italy.

US Treasuries provided fresh appeal for investors seeking refuge from the risk of the global economic slowdown and lack of central bank intervention. Yields on 10-year and 30-year debt fell to record lows today.

Spanish 10-year bond yields, however, rose back above 7 per cent. Italy yields also surged. In contrast, German yields fell. German opposition to the ECB buying government bonds remains a key challenge for Draghi to overcome.

In late afternoon trading in New York, the Dow Jones Industrial Average dropped 1.10 per cent, the Standard & Poor's 500 Index shed 1.01 per cent and the Nasdaq Composite Index slumped 0.66 per cent. In Europe, the Stoxx 600 Index ended the day with a 1.3 per cent slide on the previous close. Shares in Spain and Italy plunged.

Meanwhile, the Bank of England maintained its current bond-buying program. The central bank's Monetary Policy Committee held the quantitative-easing target at 375 billion pounds as expected and held the key interest rate at a record low of 0.5 per cent.

Investors are eyeing Friday's US jobs data which is expected to show that employers added 100,000 new workers to their payrolls last month, according to surveys by both Reuters and Bloomberg, up from 80,000 in June.

US corporate earnings are maintaining the quarter's trend of beating expectations when it comes to profits but falling short on the revenue front. About 72 per cent of companies which reported quarterly results have surpassed analysts' estimates, according to data compiled by Bloomberg. Sales fell short of expectations at 59 per cent of companies.