Markets

European stocks close lower after ECB trims growth forecast

Key Points
  • The European Central Bank trimmed its growth forecast and announced fresh long term loans on Thursday.
  • European shares moved lower following the ECB's update on its monetary policy. 
  • There is also strong focus on politics. The Italian government said it is looking to join the Chinese Belt and Road initiative and the future of Brexit is still uncertain.

European shares closed lower Thursday after the European Central Bank cut its forecast for growth in the euro zone.

The central bank also announced it was to start a fresh set of loans to banks. The TLTRO program, which will be launched in September this year and end in March 2021, is seen as a bid by the central bank to prop up Europe's flagging economy.

European banking stocks shed 2 percent by the end of the session, despite hitting a session high straight after the announcement. Meanwhile the euro dipped 0.7 percent against the U.S. dollar.

TLTRO III (Targeted Longer-Term Refinancing Operations) is the third injection of stimulus from the ECB. If commercial banks lend the ECB money on to the real economy, they receive cash back rather than pay interest on the loan.

At the closing bell, the pan-European Stoxx 600 was down almost 0.6 percent with almost every sector in the red. Autos and basic resources both shed more than 2 percent. Investors are also taking a cautious approach as they wait for further details on a possible trade agreement between China and the U.S.

Looking at individual stocks, British satellite operator Inmarsat jumped to the top of the index, gaining 8 percent after it reported a 15 percent rise in fourth-quarter earnings. JC Decaux was up 1.2 percent after the company reported a net profit increase in 2018 and decided to pay a higher dividend.

At the other end of the scale, Hugo Boss fell 6.5 percent. The retailer said Thursday that it expects its operating profit to increase faster than sales in 2019, Reuters reported.

European digital publisher Axel Springer tanked nearly 7 percent, hitting a two-year low. The firm forecast flat-to-slightly weaker earnings per share in 2019.

ECB slashes growth forecast

Markets are reacting to the ECB slashing its growth forecast for 2019 to 1.1 percent from an earlier forecast of 1.7 percent. ECB President Mario Draghi said Thursday that there had been a "sizable moderation in economic expansion that will extend into the current year." He also warned that uncertainty was persisting due to geopolitical tensions and the threat of protectionist policies.

Meanwhile, Eurostat data showed the euro zone grew at a rate of 0.9 percent in the three months to December. In the previous quarter, the region rose 0.6 percent.

There is also strong focus on politics. The Italian government said it is looking to join the Chinese Belt and Road initiative and the future of Brexit is still uncertain. European officials have urged the U.K. government to table fresh proposals within the next 48 hours to break the Brexit impasse ahead of critical votes next week in London.

On Wall Street, stocks were in the red on Thursday, signaling a fourth straight session of losses.