NEW YORK: European stocks declined in early trade, with notice fixed on the ECB after Swiss central bank’s shock action to scrap its three year bid to stop the franc from rise.
London’s FTSE 100 index dropped 0.45 per cent to 6,469.65 points compared with Thursday’s close.
Frankfurt’s DAX 30 shed 0.47 per cent to 9,985.51 points and the CAC 40 in Paris lost 0.45 per cent in value to 4,303.55.
Europe’s main stock markets had rallied on Thursday after Switzerland’s central bank cancelled a policy to stop its currency strengthening beyond 1.20 against the euro, sending the franc soaring.
A cheaper euro benefits companies exporting from the eurozone, while the strengthened franc makes Swiss products more expensive for buyers abroad.
Switzerland’s main stocks index dropped by more than 3.0 per cent at the start of trading on Friday.
Focus was also firmly on the European Central Bank, which will decide on the scale of a planned sovereign debt purchase at next week’s meeting, a board member said Friday, in the clearest sign that the ECB will launch the controversial stimulus measure.
“We will take the American and British experiences into account in order to determine the amount of debt to buy so as to reestablish confidence and bring inflation back to a level close to and lower than 2 percent, while keeping in mind the institutional specificities of the eurozone,” Benoit Coeure told French newspaper Liberation.
It comes as official data on Friday revealed that inflation in Germany, Europe’s biggest economy, slowed to just 0.2 percent in December, its lowest level in more than five years, and averaged 0.9 percent for the whole of 2014.
The chronically low level of inflation across the single currency bloc has fuelled concern the region could slip into deflation – a sustained and widespread drop in prices. Britain too risks falling into deflation later this year.
While falling prices may sound good for consumers, deflation can trigger a vicious spiral in which businesses and households delay purchases, throttling demand and causing companies to lay off workers.
Such concerns have fuelled speculation that the ECB could launch a programme of sovereign bond purchases known as quantitative easing or QE when it holds its first policy meeting of the year next Thursday.
The Swiss central bank’s decision to abandon the currency cap “is a major move and has several consequences not least of which is to inject a fresh deflationary shock into the system”, noted Neil MacKinnon, economist at VTB Capital financial group.
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