European Markets Fall As European Central Bank Cuts Interest Rates To Record Low

By Bhaskar Prasad | July 05 2012 4:10 AM

European markets fell Thursday as investors remained watchful ahead of a meeting of the European Central Bank in Frankfurt where the bank will take a decision on interest rates.

REUTERS

A trader is pictured at his desk in front of the DAX board at the Frankfurt stock exchange September 13, 2011.

Sponsorship Link

The German DAX 30 index fell 0.13 percent or 8.69 points to 6556.11. Shares of Deutsche Bank AG dropped 0.98 percent and those of Linde AG declined 0.54 percent.

The French CAC 40 index was down 0.25 percent or 8.09 points to 3259.66. Shares of Renault SA fell 0.72 percent and those of Technip SA declined 0.66 percent.

London's FTSE 100 index marginally dropped 0.05 percent or 2.88 points to 5681.59. Shares of Evraz PLC fell 3.15 percent and those of Petrofac Ltd declined 0.75 percent.

Spain's IBEX 35 fell 1.07 percent or 76.70 points to 7091.80. Shares of Enagas SA fell 4.74 percent and shares of Bankia SA dropped 1.82 percent.

Investors are expecting that the central banks in Europe will make sure that monetary easing measures are put in place to boost liquidity. With the euro zone's debt crisis intensifying again and the economic downturn deepening and broadening, market players anticipate that the European Central Bank (ECB) will cut main rate to below 1 percent in its meeting at Frankfurt Thursday.

In our view, the decision not to cut rates in June was mostly a tactical move aimed at maintaining the pressure on political leaders. Now that EU leaders have agreed on a roadmap to a banking union in particular, and despite the fact that many details still need to be sketched out, we believe that the ECB will remain flexible enough to support liquidity conditions, if and when needed, Credit Agricole said in a note.

Market participants consider that the fact that labor market indicators have worsened over the past month will call for stimulus measures. The level of the euro zone unemployment increased for the thirteenth consecutive month during May, taking the unemployment rate to 11.1 percent.

The downbeat euro zone and UK PMIs have added to the expectation that the ECB and Bank of England will inject more stimuli into their struggling economies. The euro remains firmly under pressure from worries about the region's growth outlook.