Mario Draghi stimulus fails in stock market

Mario Draghi is having no success convincing stock investors that the European Central Bank has the firepower to reignite growth ahead of today’s ECB meeting.

While all economists in a Bloomberg survey expect the central bank to cut interest rates when policy makers meet, and 73% project them to boost the amount of money put into the financial system through bond purchases, fund managers aren’t optimistic about a post-decision equity rally.

In the first year of quantitative easing, the Euro Stoxx 50 Index fell 17%, and volatility reached levels not seen since 2008.

The gauge has dropped in each month but one following an ECB meeting since April.

“It won’t be easy for Draghi to bring back confidence in the recovery,” said Andreas Nigg, head of equity and commodity strategy at Vontobel Asset Management in Zurich.

“Growth and inflation in Europe remain stuck at low levels and earnings revisions continue to fall.

“The market needs better earnings revisions and better economic surprises. ”

Even after the central bank pumped about €720bn into the region, manufacturing dropped to its lowest level since 2013, the inflation rate turned negative, and consumer confidence worsened.

That’s led analysts to slash profit-growth estimates amid the worst earnings letdown since at least 2007.

Investors are pulling money out of European equities at the fastest pace since 2014.

When the central bank started its bond-buying program, shares were steaming toward a high amid growing optimism about the euro area’s recovery.

But a succession of crises, starting with Greece’s near exit from the single currency, exacerbated by increasing unease over China’s slowing growth, a Volkswagen AG emissions scandal and the Federal Reserve’s December rate increase battered sentiment, leaving stocks up only 3.9% for 2015, from as much as 22%.

While concerns over the impact of a Chinese slowdown have eased, Europe still has its own problems to deal with.

The possibility that Britain might leave the European Union and political turmoil in Ireland and Spain are among other reasons that have pushed stock swings to the highest since 2008.

“Expectations are pretty high, and I fear it’s almost impossible for the ECB to fulfill the promise,” said Benno Galliker, a trader at Luzerner Kantonalbank AG in Lucerne.

“We have the UK referendum in June, and they may need to intervene in the markets after. So I don’t think they’ll do everything now because they’ll need to keep the powder dry until then. There could be a short-term correction.”

Bloomberg