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AM Bulletin: Equities and oil slip in early trade
31 Mar 2016
PM Bulletin: Non-Farm Payroll look-ahead
31 Mar 2016
AM Bulletin: Yellen comments boost risk appetite
30 Mar 2016
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30 Mar 2016
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29 Mar 2016
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29 Mar 2016
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24 Mar 2016
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24 Mar 2016
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23 Mar 2016
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23 Mar 2016
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22 Mar 2016
Weekly Bulletin: US dollar on the back foot
21 Mar 2016
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18 Mar 2016
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18 Mar 2016
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17 Mar 2016
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17 Mar 2016
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16 Mar 2016
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16 Mar 2016
AM Bulletin: BOJ unchanged
15 Mar 2016
PM Bulletin: FOMC look-ahead and the USD
15 Mar 2016
Weekly Bulletin: Central banks still in focus
14 Mar 2016
PM Bulletin: Gold
14 Mar 2016
AM Bulletin: Confusion reins
11 Mar 2016
PM Bulletin: EURUSD revisited
11 Mar 2016
AM Bulletin: ECB meeting in focus
10 Mar 2016
PM Bulletin: Mr Draghi fires his bazooka
10 Mar 2016
AM Bulletin: Markets consolidate
09 Mar 2016
PM Bulletin: ECB look-ahead
09 Mar 2016
AM Bulletin: Chinese data weighs on equities
08 Mar 2016
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08 Mar 2016
Weekly Bulletin: ECB expected to boost stimulus
07 Mar 2016
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07 Mar 2016
March: Non Farm Payrolls Out Today
04 Mar 2016
AM Bulletin: Markets quiet ahead of Non-Farms
04 Mar 2016
PM Bulletin: Meanwhile, over in silver...
04 Mar 2016
AM Bulletin: Equities consolidate
03 Mar 2016
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03 Mar 2016
AM Bulletin: Equities soar
02 Mar 2016
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02 Mar 2016
AM Bulletin: See-saw day ends in losses for US equities
01 Mar 2016
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01 Mar 2016
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 Friday 11 March 2016

AM Bulletin: Confusion reins

 

 

Indices Update

European equities and US stock index futures were sharply higher in early trade this morning. This was a continuation of the late US stock market rally. Nevertheless, it was yet another reversal in the rollercoaster ride that risk assets have continued to suffer since the European Central Bank (ECB) meeting yesterday.

The central bank broke convention and announced a raft of stimulus measures along with its headline rate decision. Usually the complicated stuff is released at the start of the President’s press conference – 45 minutes after the rate announcement.

Anyway, the ECB cut its headline Minimum Bid Rate to zero from 0.05%. It cut its deposit rate by 0.1% and will now charge financial institutions 0.4% on surplus funds. Bond purchases are being ramped up by €20 billion per month to €80 billion (the upper end of expectations). The ECB will also include investment grade euro-denominated bonds issued by non-bank corporations as assets that are eligible for purchase. Previously QE was limited to regional debt. There will also be four new rounds of Targeted Long Term Refinancing Operations (TLTROs).

This mounted up to a whopping package of monetary stimulus. Investors rushed to join in the party and hoovered up equities. But the grown-ups got back early, turned on the lights, turned off the music and shoved the revellers out into the street. Stock indices gave back early gains and were sharply lower by the European close.

Investors began to fret that having fired its bazooka the ECB is now out of ammunition. During his press conference Mario Draghi insisted that this wasn’t the case. However, he also said that while rates will stay low for prolonged period, the ECB did not anticipate cutting them further. It is also becoming apparent that there is a limit to what ever-looser monetary policy can achieve.

The FTSE 100 index closed at 6,036.7 down 109.6 points on the day, or -1.8%

The German DAX fell 224.9 points or 2.3% to finish at 9,498.2

The US30 closed down 5.2 points to finish at 16,995.1 The S&P 500 was effectively unchanged and closed at 1,989.6 while the Nasdaq 100 fell 0.2% to close just shy of 4,287

Equities Update

Yesterday saw widespread losses for individual equities in the UK and across Europe. Banks, supermarkets and oil majors were amongst the biggest losers, but it was companies in the mining sector which suffered the most. This is understandable seeing that mining stocks have had such a strong recovery since mid-February. Anglo American (AAL) fell 5.2% and closed 502.8 pence. BHP Billiton (BHP) ended just shy of 5% lower at 789.9 pence while Antofagasta (ANTO) lost 4.7% and finished the day at 509.5 pence.

Commodities Update

Crude oil spent most of yesterday morning little-changed. It also appeared to shrug off news of the ECB’s fresh stimulus. On one hand the looser monetary conditions could be seen as positive for the oil market as it should give a boost to European growth prospects and counter deflationary pressures. But on the other, the initial sell-off in the euro meant a stronger dollar – something which typically weighs on the oil price.

However, oil sold off sharply soon after the ECB announcement for a completely different reason. It looks as if a meeting between OPEC and non-OPEC producers which was set for 20th March isn’t going to happen. The reason given was that Iran had yet to commit to the proposed production freeze. This seems somewhat disingenuous as it is well known that Iran is currently desperate to ramp up production and exports after years of sanctions against the country. Not only that, all the signs were that Saudi Arabia and others were prepared to exempt Iran from any output freeze. So far only Kuwait has insistence that it won’t be party to any agreement to freeze output unless Iran is included, but that news was shrugged off earlier in the week.

Gold was little-changed ahead of the ECB rate decision. However, it sold off heavily in the immediate aftermath of the ECB’s announcement of a bigger-than-expected stimulus boost. This was dollar-related more than anything else. The greenback soared as the euro sold off as the central bank announced an additional raft of monetary easing. Gold briefly broke below $1,240 – a level which is an obvious support level on the chart. But it didn’t stay down there for long and it quickly rallied back into positive territory. It was a similar story for silver. Both precious metals turned higher along with the euro as Mario Draghi suggested that the ECB did not anticipate cutting rates further.

Forex Update

The ECB announced a larger-than-expected package of monetary stimulus. The initial market reaction was swift and violent. The euro slammed lower while the dollar soared and the EURUSD hit its lowest level since 25th January. The initial investor reaction was just what Mr Draghi was looking for.

But then it all changed. The euro suddenly rallied and it all looked rather similar to the market reaction which followed the Bank of Japan’s shock decision at the end of January to take rates negative. Rather than sending the yen lower and thereby helping to boost inflation, the Japanese currency soared.

On the face of it the ECB’s action was evidence of the central bank’s willingness to do “whatever it takes.” But investors were left wondering if this represented a final throw of the dice. During his press conference Mario Draghi insisted that this wasn’t the case. However, he did admit that while rates will stay very low for prolonged period, the ECB did not anticipate cutting them further. This wasn’t an example of Mr Draghi misspeaking. But it could be that the German-led hawks on the Governing Council have made it clear that this is the limit of their largesse. If so, then Mario Draghi is out of bullets and out of bluff, unless economic conditions across the Euro zone deteriorate significantly.

Upcoming events

The calendar is very light today. For the most part we only have second-order releases which include Italian Industrial Production, the UK Trade Balance, Construction Output and Consumer Inflation Expectations. We also have US Import Prices and Canadian Unemployment.

Disclaimer:

Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

 

Posted by David Morrison

Tagged: AM Bulletin

Category: AM Bulletin


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