Richard Drew, Associated Press
LONDON — Concerns over the state of the U.S. and China economies, the world's two biggest, weighed on markets Thursday despite widespread expectations that the European Central Bank will cut interest rates to a new low later.
Over the past few weeks, evidence has mounted that the U.S. and China have entered a soft patch. Figures on Wednesday, particularly out of the U.S., pointed to a further weakening in economic activity and in the labor market during April.
Wall Street had a difficult day Wednesday especially after the Federal Reserve sounded a fairly neutral view on the U.S. economy after its two-day policy meeting. Some investors had hoped the Fed would steer investors into extending their views on how long the super easy and cheap monetary policy would last.
"A general risk-off mode predominates, the Fed meeting yesterday having been viewed as a crushing disappointment by equity markets," said Chris Beauchamp, market analyst at IG.
In Europe, the FTSE 100 index of leading British shares was down 0.4 percent at 6,428 while Germany's DAX rose 0.1 percent to 7,918. The CAC-40 in France was 0.3 percent lower at 3,844.
Wall Street was poised for a modest recovery after a big retreat on Wednesday following a soft private payrolls report from ADP and another lackluster manufacturing survey from the Institute for Supply Management. Dow futures and the broader S&P 500 futures were 0.2 percent higher.
"Yesterday's (ADP) jobs number has ensured that no one is enthusiastic ahead of tomorrow's nonfarm payrolls," said Mike McCudden, head of derivatives at Interactive Investor.
Before U.S. markets open, investors will have another raft of news to digest, including weekly jobless claims that could have a bearing on expectations for Friday's big economic release of the week — the monthly U.S. nonfarm payrolls report.
However, the main focus on Thursday will likely center on developments in Bratislava, the capital of Slovakia, where the European Central Bank is expected to cut its main interest rate by a further quarter of a percentage point to 0.5 percent. Of more interest, perhaps, than the actual rate cut, which is fully priced in, is whether the ECB does more to shore up growth. A lending program for small and medium-sized, or SMEs, may be announced by ECB head Mario Draghi too.
"Measures to ease credit conditions for SMEs would be more useful, and cause a stronger market reaction," said Andrea Cicione, an economist at Lombard Street Research.
Currency traders will also be keeping a close watch on the newsflow to see if the dollar's recent weakness following the sub-par data continues. Ahead of all the main news, it was trading fairly steadily. The euro was down 0.1 percent at $1.3167 while the dollar was flat at 97.24 yen.
Earlier in Asia, Japan's Nikkei 225 index fell 0.8 percent to close at 13,694.04 while South Korea's Kospi lost 0.4 percent at 1,956.39. Hong Kong's Hang Seng shed 0.3 percent to 22,668.30.
Oil prices were flat with the benchmark New York rate up a cent at $91.04 a barrel.