Europe
European markets initially couldn’t make up their minds about today’s ECB rate decision, and while the banks liked the fact that the pace of asset purchases was slowed, and the pool of assets extended, sending yields higher, the euro didn’t like it so much, sliding sharply after initially spiking higher.
In the end equity markets liked what they heard and moved higher accordingly, extending this week’s gains and making new multi month highs in the process, with the FTSEMib hitting its highest levels since May, and the German DAX breaking through 11,000 for the first time since December last year.
Today’s decision proved to be a classic case of euro fudge as the bank extended its €80bn QE program beyond March next year, but cut the monthly amount to €60bn from April 2017 until the end of the year, in essence arguing that they have extended the program, but also reflecting the fact that deflation was no longer a major concern.
In essence all they’ve done is reduced the monthly asset purchase amount back to the levels it was in March this year, when deflation was still a worry, and now that rates are rising again have pulled it back down again in a move akin to dabbing the brakes on a speeding motor car.
More importantly the ECB changed the limits to their bond buying program by saying that they would buy bonds below the -0.4% deposit rate if the situation warranted, as well as widening the pool of available assets to include 1 year to 30 year bonds, while keeping their options open with respect to adjusting the pace of the monthly program.
While the European banking sector has seen a sharp move higher on today’s shift as yields on government debt have risen, this will be a double edged sword for indebted European governments, particularly Italy that has a large stock of government debt that will need rolling over next year, and is likely to face much higher rates if these yields are maintained.
Once again the basic resource sector is the best performer today after the latest Chinese trade data showed an improvement in November, with Rio Tinto (LON:RIO) and Anglo American (LON:AAL) out in front.
Glencore (LON:GLEN) is also in the news after the company announced that it, along with the Qatar Investment Authority was taking a 19.5% stake in Rosneft for €10.2bn. This is a bold decision given that Glencore’s problems over a year ago were as a result of taking on too much debt, though they have taken steps to at least halve that in the last 12 months.
Involvement with Russian oil companies aren’t without risk as BP (LON:BP) will testify, however it will be joining BP who already own a near 20% stake in Russia’s biggest oil company. There is also a concern the deal may well violate western sanctions on Russian companies.
Advertising company WPP (LON:WPP) is also performing well after being one of yesterday’s worst performers.
In company news outsourcing business Capita’s shares have taken a nose dive after announcing a raft of job losses, a cut to its full year profits guidance and the sale of its asset services division.
US
US markets having posted new record highs overnight opened slightly mixed initially, as investors mulled over the key takeaways from ECB President Mario Draghi’s press conference, and the policy decision to reduce the amount of monthly asset purchases from April next year.
Having done that markets picked up where they left off led by financial stocks in the process posting new record highs with investors keen to close in on the psychologically important 20,000 level on the Dow which is starting to loom ever closer on the horizon.
On the data front weekly jobless claims dropped to 258k from the previous weeks 268k.
In company news oil giant Chevron (NYSE:CVX) has announced that it will reduce capital spending by 15% in 2017, as a result of the prospect of lower for longer oil prices.
Amazon (NASDAQ:AMZN) is also in focus after it dismissed reports that it was planning to open physical stores to sell groceries.
Fashion clothing retailer Lululemon is also sharply higher after boosting its profits outlook
FX
The euro slid sharply in the aftermath of today’s ECB rate decision as the ECB extended its bond buying program; by at the same time they also reduced the monthly amount to €60bn a month to reflect a less deflationary outlook. The dovish tone along with the decision to remove the yield floor really helped to knock the stuffing out of the euro sending it back down to the 1.0600 area after briefly hitting a two week high at 1.0875.
The US dollar has been the main beneficiary of the euro’s woes today sharply higher on the day as the latest weekly jobless claims number showed a drop from the 268k last week.
Commodities
Oil prices have recovered some of their poise after three successive days of declines; however doubts still remain as to whether non OPEC members will do enough to make the cuts OPEC plans to make in any way effective.
Other commodity prices have remained on the weak side due to the rebound in the US dollar in the afternoon session.
"DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) 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 CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. "