Europe close: Stocks tumble as ECB leaves investors disappointed

European equities slumped on Thursday, after the European Central Bank president Mario Draghi disappointed investors as the new monetary policy was not what markets had hoped for.

The benchmark Stoxx Europe 600 index slumped 3.17%, while France’s CAC 40 and Germany’s DAX both plunged 3.58%.

The ECB's decision sent the euro surging. As of 1637 GMT, the European currency was up 2.78% and 2.59% respectively against the dollar and the yen respectively and gained 1.77% against the pound, while Brent crude jumped 1.80% to $43.27 a barrel.

“The European Central Bank’s failure to meet the expectations for further policy loosening fuelled by its own dovish signals has dented both its reputation for communication and, more importantly, the outlook for the euro-zone economy,” said Jonathan Lyones, chief European economist at Capital Economics.

ECB and Draghi disappoint investors

Draghi announced the asset purchase programme will be extended to March 2017 from the original finish date of September 2016.

However, the ECB decided to keep asset purchases at €60bn a month, in a move that surprised analysts who had expected an increase to around €75bn.

The ECB will extend the range of assets that are eligible for quantitative easing to include the purchase of regional and local government debt.

Draghi added that the central bank will reinvest the principal payments on the securities purchased under the QE programme as they mature, as long as necessary.

“Mario Draghi failed to live up to the sizeable expectations resulting from his continuous dovish rhetoric since the October meeting,” said IG’s market analyst Joshua Mahony.

“He implemented two of the three measures markets were looking out for, yet the decision to leave asset purchases at €60bn per month signalled a somewhat conservative approach that seemed to contradict his ‘whatever it takes’ mantra.”

On the macroeconomic front, Eurozone retail sales fell 0.1% month-on-month compared with analysts’ expectations for a 0.2% gain and a 0.1% drop the previous month.

On a year-on-year basis, retail sales grew 2.5% last month compared with a 2.9% advance in October and short of consensus expectations for a 2.6% gain. Elsewhere, the final Markit Eurozone purchasing managers’ index rose from 53.9 in October to 54.2 in November, registering the 29th consecutive month of expansion.

The figure was slightly below the flash estimate but slightly above the 53.9 reading registered in the previous three months.

In company news, Royal Dutch Shell fell 2.34%. despite winning approval from Australia’s Foreign Investment Review Board for its proposed $70bn takeover of BG Group.

Solvay fell 4.25% after the Belgian chemicals company launched a share issue to complete the funding for its purchase of Cytec Industries.

Aluminium producer Norsk Hydro dropped 3.48% after launching new cost-cutting measures to combat declining aluminium prices.