While you were sleeping: Wall St slumps, ECB’s Draghi disappoints

Stocks and bonds dropped on both sides of the Atlantic as European Central Bank president Mario Draghi offered additional easing that fell short of expectations, while Federal Reserve chairwoman Janet Yellen underpinned bets she'll raise rates this month.

At the close, Wall Street had slumped 252 points, or 1.4%, to 17,477.67 while a sell-off in bonds lifted the yield on 10-year Treasurys to 2.328% from 2.178%.

The ECB cut its deposit rate and extended its quantitative-easing programme until at least March 2017, also broadening the range of securities it can buy to debt issued by euro-zone regional and local governments but failed to increase the total value of its monthly asset-buying programme.

The ECB's governing council "if warranted, is willing and able to act by using all the instruments available within its mandate in order to maintain an appropriate degree of monetary accommodation," Mr Draghi said in a press conference.

Europe's Stoxx 600 Index slid, finishing the session with a plunge of 3.1% from the previous close. The UK's FTSE 100 Index sank 2.3%, while both Germany's DAX and France's CAC 40 Index slumped 3.6%.

"Mr Draghi's known for over-delivering," Gennadiy Goldberg, a US rates strategist in New York for TD Securities, one of the 22 primary dealers that trade with the Fed, told Bloomberg. "That's not the case anymore. He has under-delivered."

The euro jumped, climbing to its highest level against the greenback in a month.

"The (ECB) commentary clearly caught people by surprise," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles, told Reuters. "Most currency traders were short the euro and long the [US[ dollar, expecting different commentary from Mr Draghi."

Rate increase expectations rise
The Fed's Mrs Yellen, meanwhile, strengthened expectations the Federal Open Market Committee will announce an interest rate increase after its next meeting on December 15 and 16.

"I currently judge that US economic growth is likely to be sufficient over the next year or two to result in further improvement in the labour market," Mrs Yellen said in testimony to the Congress's Joint Economic Committee on Thursday.

"Gains in the labour market, coupled with my judgment that longer-term inflation expectations remain reasonably well anchored, serve to bolster my confidence in a return of inflation to 2% as the disinflationary effects of declines in energy and import prices wane," according to Mrs Yellen.

A US Labor Department report showed initial claims for state unemployment benefits rose 9000 to a seasonally adjusted 269,000 for the week ended November 28. The data followed a stronger-than-expected ADP employment report on Wednesday. On Friday, a government report is expected to show US employers added 200,000 jobs in November.

Economists surveyed by Bloomberg and investors in futures markets anticipate the target range for the benchmark federal funds rate to rise by a quarter%age point this month.

On Wall Street, the Standard & Poor's 500 Index shed 1.4% to 2049.62, while the Nasdaq Composite Index fell 1.7% to 5037.53.

"Markets are still struggling with the dichotomy between the ECB and the Fed," Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago, told Reuters.

Slides in shares of Merck and those of Travelers, each trading 1.8% weaker, helped drag the Dow lower. Bucking the trend were shares of Wal-Mart Stores and those of General Electric, up 1.5% and 0.6% respectively, for the only two Dow members to trade higher in the early afternoon.

Oil jumped back of the $US40 a barrel mark, adding 2.9% to $US41.08, while gold rose 0.7% to $US1061.20 an ounce.

UPDATED for Wall Street close at 10am NZ time.

(BusinessDesk)