Europe
Shares in Europe rocketed back to form in an afternoon rally during the press conference of the European central bank’s policy meeting. In the ECB’s official statement President Mario Draghi announced the beginning of its QE program on March 9th.
There were some initial jitters when the ECB lifted its Eurozone growth forecast for 2015 and 2016 given the implication that the QE program may end early. Early concerns were soon reconciled when President Draghi implied the program would end in September 2016 at the earliest subject to inflation in the Eurozone.
The key turning point was in the Q&A when Draghi said that the asset purchases would include buying Government bonds with negative yields up to the deposit rate, which currently stands at -0.2%. After Draghi’s answer on negative yields the German DAX lurched to new all-time highs and the euro plunged to new eleven year lows.
In sync with the higher revisions to the ECB’s growth forecasts, Mario Draghi was fairly positive on the future direction of the Eurozone economy. Some have been questioning the value of QE when the Eurozone already appears to be showing signs of recovering thanks to the lower Oil and euro. Draghi addressed the concerns of starting QE after the Eurozone economy may have seen its worst by saying that improving money and credit dynamics will aid the transmission mechanism and help QE work more effectively.
Draghi faced a number of questions on Greece including one particularly shouty example, easily the most entertaining part of the press conference. Draghi’s response to all questions relating to Greece was quite formulaic repeating several times that the ECB has just abided by rules rather than any political motives.
While part of the bailout review, both Greek and Cypriot government bonds will not be bought as part of the ECB’s €60bn in monthly asset purchases.
UK
Events outside of UK shores dictated trading in UK stocks on Thursday after the ECB announced its quantitative easing program will begin on Monday at its meeting in Cyprus. London is the economic centre of the EU so even though it isn’t part of the Eurozone, some of the extra euros printed seem likely to be exchanged into pounds, some of which will be used to buy UK stocks.
The FTSE 100 was pushing into its all-time closing high as of the end of the trading session on Thursday with insurers led by Aviva Plc (LONDON:AV) topping the index. It would not be a bald call to say the FTSE100 could be at 7,000 by as early as tomorrow.
US
As the best performing equity market in the past few years, the US is expected to gain from the increased liquidity as a result of QE from the ECB and US stocks duly rose on Thursday.
Unemployment claims unexpectedly rose for the week on Thursday to 320,000. This follows a miss on the February ADP report reported yesterday. This week’s employment data suggests the US labour market is expanding but at a reduced pace.
Should non-farm payrolls follow the week’s trend and also disappoint on Friday then US equities may be further underpinned as the timing of the next rate hike by the Fed could get set back to later in the year.
FX
The US Dollar was stronger across the board largely as the major counterpart to the euro weakness stemming from the latest ECB policy meeting.
In opposite fashion to stocks, the euro initially rallied when the ECB raised its growth forecasts but plummeted to new eleven-year lows after Draghi said bonds would be purchased with a negative yield up until the deposit rate.
The Reserve Bank of New Zealand announced that it is considering new rules for residential property investors in order to curb speculation in the housing market. The move to regulate rather than act through monetary policy could imply a delay to hiking rates and sent the Kiwi dollar crashing.
Commodities
Gold and Silver leaped higher after the ECB’s inflationary policies prompted flows into assets that protect against inflation. Yields on government bonds in Europe dropped removing some of the disadvantage to holding non-yielding assets.
Oil climbed following on from the relative strength seen in the face of a massive build-up in US oil reserves seen on Wednesday. It would appear oil will need a bigger catalyst than rising inventories in the US to see further falls below its recent trading range.
Copper was stable having already priced in the cut in the official China growth target from 7.5% in 2014 to 7.0% in 2015 and implied reduced demand in the metal.
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