[HONG KONG] Asian markets mostly fell early Friday after the head of the European Central Bank suggested its latest rate cut could be its last, stoking fears over the limitations of finance chiefs to drag the global economy out of its torpor.
The ECB on Thursday announced a cut in its deposit rate further into negative territory as part of a series of stimulus measures that also included a ramping up of its huge bond-buying scheme.
The news sent European stocks soaring and the euro tumbling as traders gave a loud cheer, with analysts saying it beat expectations.
However, soon afterwards Bank boss Mario Draghi said at a news conference that he did not anticipate further interest rate cuts, sparking a wave of selling.
"Markets did not like this news," Matthew Sherwood, head of investment strategy at Perpetual Ltd. in Sydney, said in an email to clients.
"The ECB pulled out its bazooka overnight and unleashed a bold package of stimulus which exceeded or met expectation on every count," he said, according to Bloomberg News.
"But then the ECB president in his news conference suggested that there would not be deeper cuts to negative regional deposit rates, which seemingly limits the extent to which the ECB can use policy to lower the euro." European stock markets ended deep in the red and the euro also reversed course, rising from a session low of US$1.0822 to US$1.1183 after Draghi spoke. In early trade Friday it bought US$1.1204.
Observers said the comments highlighted that despite a series of measures from central banks around the world, they are gradually running out of room to act as they try to kick-start their respective economies.
A similar policy of negative interest rates has also been adopted in Japan, but that has largely been seen as a desperate measure by struggling bank policymakers as the economy there continues to underperform.
"You could see that the ECB has dealt all the cards that it could,", Norihiro Fujito, a general manager of Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo said.
"The ECB's monetary stimulus package went above expectations and delivered the full course. But the market moved in the other direction, and they've now proved how monetary policy alone will have limited impact." Japan's Nikkei index ended the morning session 0.9 per cent lower, while Shanghai slipped 0.4 per cent and Sydney was 0.1 per cent lower. There were also losses in Singapore, Wellington and Jakarta.
However, Hong Kong edged up 0.2 per cent having fallen for the past four sessions.
Attention will now turn to policy meetings for the Federal Reserve next week, with hopes for some forward guidance on US interest rate policy, as well as the Bank of Japan.
Oil prices resumed their uptrend after dipping slightly Thursday, with investors heartened by this week's data showing a sharp drop in gasoline reserves suggesting demand is picking up.
US benchmark West Texas Intermediate was up 1.3 per cent and Brent gained 1.2 per cent.