By Tommy Stubbington
European stocks continued to fall Thursday ahead of the European
Central Bank's monthly policy announcement.
The Stoxx Europe 600 was 0.8% lower midmorning, deepening
Wednesday's 0.8% decline.
The move was sparked by weaker-than-expected economic data in
the euro zone, including an unexpected contraction in Germany's
manufacturing sector.
U.S. stocks stumbled Wednesday as the selloff spread to Wall
Street, pulling the S&P 500 1.3% lower. Futures contracts
indicated a further 0.2% loss for the index at Thursday's open.
Changes in futures aren't necessarily reflected in market moves
after the opening bell.
In Asia, Japan's Nikkei dropped 2.6% as a stronger yen
exacerbated investors' concerns.
Investors are now looking to the ECB to shore up the euro zone's
shaky recovery, although most think Thursday's policy meeting is
too soon for fresh action given September's announcement of
unexpected interest rate cuts and a program to buy private-sector
debt.
"We expect the ECB to reveal details today of its new
asset-purchase program, with no change to policy at this juncture,"
said Barclays analysts.
"However, under our scenario of still weak economic activity and
inflation in the coming months, we expect the ECB to ease policy
further and extend the scope of asset purchases to government bonds
by the beginning of 2015," they said in a note to clients.
Expectations of further ECB measures have weighed on the euro in
recent weeks, but the currency picked up slightly early Thursday
amid a broader pullback for the U.S. dollar. The euro was 0.1%
higher against the dollar at $1.2642, still not far above the
two-year low hit earlier this week.
The euro's relatively mild reaction to Wednesday's disappointing
data could point to further losses for the currency, according to a
note to clients from Citigroup.
"This is healthy for the greater move lower. I think the market
is underestimating [ECB President Mario] Draghi's ability to be
dovish during this meeting," said a Citigroup currency trader in
London.
Bonds in the euro zone have also been boosted by hopes of
further ECB action. German 10-year yields traded at 0.90% Thursday,
close to August's all-time low of 0.86%. Yields fall as prices
rise.
In commodities markets, gold was steady at $1,215.50, and Brent
crude oil was 1.3% lower at $92.97 a barrel.
Write to Tommy Stubbington at tommy.stubbington@wsj.com