There has been a flood of selling in government bond markets all this week and it is starting to reflect more heavily on equity prices on Thursday. European equities are sharply lower and the Dow Jones Industrial Average is looking like its first open below 18,000 in almost a month.
ECB President Mario Draghi said yesterday that the central bank would look through market volatility and maintain its current QE policy. The ECB saying it will keep doing the same probably wasn’t enough to support bond markets that became a falling knife a month ago. The ECB president offered a few possible explanations for the bond market sell-off, but for the most part, the central bank looks a bit flat-footed. The ECB seems out of ideas for combating the volatility that it played a large part in causing.
The idea of front-loading purchases put forward by ECB board member Benoit Coeure, first to hedge fund friends, then to wider markets the following day was enough to institute a pause in the bond sell-off. To turn bond yields around back into the territory of negative yields many were getting used to, president Draghi would have had to introduce a more radical step such as the ECB increasing or at least implying it could increase bond purchases if needed. Since that now doesn’t look likely, as Mr Draghi said, more volatility can be expected in asset prices.
The last labour market data before tomorrow’s non-farm payrolls is expected on Thursday including weekly jobless claims, challenger job cuts, non-farm productivity and unit labour costs.
Futures suggest the:
S&P 500 will open 11 points lower at 2,103 with the
Dow Jones expected to open 98 points lower at 17,978 and the
Nasdaq 100 33 points lower at 4,486.
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