Cautious Draghi Sends Euro Lower Stocks Higher

Europe

European stock markets are strong after the European Central Bank (ECB) announced it would reduce its stimulus package to €30 billion worth of bonds per month from January until the end of September 2018. The ECB President, Mario Draghi, was still cautious even though he was trimming the stimulus package, and hinted more could be used if it were required. Traders took this as an indication that their monetary policy will remain loose, and use the weakness in the euro as a reason to snap-up eurozone stocks.

Barclays (LON:BARC) posted a 40% increase in third-quarter profits. Costs were kept down and the bank didn’t have to set aside funds for the mis-selling of payment protection insurance (PPI). It was the drop in trading revenue was caught investors’ attention, and income derived for dealing on the financial markets declined by 34%. The size of the decline spooked traders, as US banks posted on declines that were in the mid-teens percentage wise. The share price is down 8%.

Deutsche Bank (DE:DBKGn) shares are also lower on the day after it revealed a 36% drop in trading revenue. The German bank posted third-quarter net income of €649 million, and that is a 133% rise on last year’s figures, and well ahead of the €281 million expected by analysts. The bank stated it expects ligation costs to tick up in the fourth-quarter, this also weighed on the investor sentiment. The stock has been broadly in decline since 2014, and today’s update is unlikely to shake it out of its downward trend.

US

American equity benchmarks are in positive territory as reporting season continues. Some of the feel good factor from the Europe has rubbed off on the US, and has helped the American markets get back to their recent bullish form.

Twitter (NYSE:TWTR) posted earnings per share (EPS) of 10 cents, while analysts expected 6 cents – that was record profitability. Revenue was $590 million, a touch above the forecasts. The social media giant gave a positive forecast for the fourth-quarter too. In the latest quarter, the number of users rose by 4 million – below analysts’ estimates. Daily active users jumped by 14% - it was the sixth consecutive quarterly increase. The stock is up 14.8% today.

Ford (NYSE:F) shares are up 1%, after it revealed third-quarter EPS of 43 cents – analysts were expecting 32 cents, and that was a 65% improvement on last year’s figure. Revenue for the period was $36.5 billion, and the consensus was for $32.8 billion. The automaker upped its full-year EPS outlook from a range of $1.65 to $1.85, to $1.75 to $1.85. All of which paints a positive picture for the stock. The company is still embarking on a cost cutting programme, and it is investing in the technology to focus more on producing electric vehicles. Today’s update was impressive, but until the stock exceeds its 200-day moving average at $13.89, its outlook is likely to be negative.

FX

EUR/USD sold-off heavily after Mario Draghi of the ECB has a cautious taper to the stimulus programme. It wasn’t a total shock that the ECB are extending their bond buying scheme by nine months and lowering their monthly bond purchase to €30 billion per month come 2018. The fact that Mr Draghi doesn’t seem to be in a hurry to completely finish the scheme prompted dealers to dump the euro. Come September 2018, we may well see another extension to the bond buying scheme.

GBP/USD has handed back some of the strong gains it made yesterday on account of the solid growth figures the UK reported. The Confederation of British Industry (CBI) realised sales report for October swung to -36 from 42 in September, and this announcement encouraged selling of sterling. The pound is still in the upward trend that it has been in since the start pf the year, and the prospect of a rate hike next month from the Bank of England (BoE) is likely to keep that trend in place.

Commodities

Gold came under a bit of pressure today as the rally in the US dollar, on account of the ECB update, made the metal less attractive to traders. The sell-off in the euro drove the US dollar higher, and in turn kept gold trading in the red slightly. The assets has not been helped by the risk-on attitude of investors, and risk appetite is evident by the strength of US and European stock markets. Gold is hovering around its 100—day moving average at $1275, a metric it has found difficulty breaking below.

WTI and Brent Crude have edged up in the last hour or so after the Saudi Arabian Crown Prince Mohammed bi Salman stated he supported an extension of the OPEC oil production freeze. This isn’t the first call from the largest oil producer in the world to keep the co-ordinated production cut in place. The nation has a loud voice within OPEC, and the group will be meeting next month so the Saudi’s are making their position clear well in advance.

Disclaimer: CMC Markets is an execution-only service 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.

Original post