By Sara Sjolin, MarketWatch
LONDON (MarketWatch) — European stock markets closed around the flat line on Thursday after the initial euphoria over a surprise rate cut by the European Central Bank faded, as investors started to consider the reasoning behind the easing move.
Better-than-expected U.S. growth data also hurt sentiment, as they stoked fears the Federal Reserve would start tapering its asset purchases sooner than expected.
The Stoxx Europe 600 index /zigman2/quotes/210599654/delayed XX:SXXP +0.46% closed slightly lower at 323.23, after trading as high at 328.08 after the ECB announcement.
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“Over the last couple of weeks we’ve had some data coming out that has been soft and the [ECB] council has decided it’s important to act sooner rather than later,” said Timo del Carpio, European economist at RBC Capital Markets.
“This is a reaction to what is essentially a deviation from the ECB’s baseline scenario about the euro area’s recovery,” he added.
Markets in Europe initially spiked after the ECB surprised them by cutting its benchmark interest rate, the refi rate, by a quarter of a percentage point to a record-low of 0.25%. Analysts had speculated about whether the central bank would cut rates at its meeting on Thursday after the release of weak euro-zone inflation data in the past week, but most market participants expected no action until December.
“In actuality, a rate cut has only been a question of ‘when’ rather than ‘if’ for some time now. Euro-zone inflation is collapsing while output gaps are large and with feeble growth, set to be persistent,” said Mike Ingram, market strategist at BGC Brokers, in a note.
“Moreover credit conditions are still tightening, albeit at a slower pace and little progress has been made in bringing down lending rates in Europe’s beleaguered periphery. To top it all, the euro has been strong — defying the consensus call of a strong dollar,” he added.
The euro /zigman2/quotes/210561242/realtime/sampled EURUSD -0.0601% sank to $1.3390, down from $1.3519 late Wednesday.
The Bank of England on Thursday left the size of its bond-buying program unchanged and kept its key lending rate at a record low of 0.5%, where it has stood since March 2009.
A solid reading on U.S. growth also beat some of the air of the positive sentiment in Europe. The Commerce Department said gross domestic product in the country climbed at an annual rate of 2.8% in the third quarter, up from 2.5% in the prior period and better than the 2.3% forecast by economists polled by MarketWatch.
Strong U.S. data have recently been interpreted as negative for the stock market, because it strengthens the argument for the Fed to taper its $85-billion-a-month asset purchases.
U.S. stocks traded lower on Wall Street.