Europe
Stocks chopped around in Europe on Thursday with investors kept guessing over future ECB policy; shares spiked higher in the first few minutes of ECB president Mario Draghi’s press conference but faded not long afterwards with investor’s left unconvinced.
President Draghi did not announce any new stimulus but did say the ECB may introduce further measures if needed and that was enough to initially drive the euro lower and European and even UK stocks to multi-week highs.
The main message was of ECB balance sheet expansion in the face of balance sheet contraction at other central banks because of the different stages in the economic cycle. The ECB president hinted at lower revisions to staff forecasts saying that the risks to growth were to the downside because of geopolitical risks, dampened confidence and private investment but did say he expects gradual improvement in 2015.
Markets put the two messages together to find the desired results; more stimulus if needed and a likelihood of lower growth means more stimulus is likely. The trouble is until the stimulus comes, if it ever does, the European economy is expected to weaken in the meantime and could well pull shares down with it.
UK Industrial Production year over year for September fell to 1.5% from 2.5% previously while UK Manufacturing Production year over year dropped to 2.9% from 3.9%.
UK industrial and manufacturing production came in ahead of expectations; the annual figure has slowed since August but not as much as expected and could result in a higher estimate for Q3 GDP
An improvement from Morrisons (LONDON:MRW) lifted British retailers after the supermarket announced the declined in like for like sales pulled back thanks to the popularity of its new loyalty card while it also narrowed its profit guidance for 2014. Tesco (LONDON:TSCO), Sainsbury(J) (LONDON:SBRY), Supergroup (LONDON:SGP) and Debenhams (LONDON:DEB) all rallied in sympathy.
Randgold Resources (LONDON:RRS) recovered some of the steep losses seen recently from falling Gold prices after reporting gold output at all-time highs should help the company deliver a record year in profits.
US
The Dow 30 and S&P 500 both made record highs at the open of trading but fell back inside the first hour of trading with assurances from Draghi not enough to sustain the gains.
After the staggering V-shaped rally from the October lows to new record highs, there is a distinct risk that US stocks move into a sideways range having put in the highs for the year.
US unemployment claims dropped to 278k, lower than forecasts and far below the 300k mark widely followed by markets. With ADP and jobless claims beating expectations; odds are increased for a strong NFP on Friday.
FX
Weakness in the euro thanks to the ECB saw FX traders flood into the US dollar resulting in gains against all major currencies.
EUR/USD fell 100pips below its recent floor at 1.25 to 1.24 with its downtrend very much in tact, but with no extra stimulus introduced from the ECB, it maybe dollar strength, perhaps from Friday’s non-farm payroll report that will see it extend the losses.
GBP/USD fell back to its lows below 1.60, a close below 1.5875 is needed to set the stage for the next leg lower.
Commodities
Crude Oil prices got dumped again after OPEC lowered all its price and demand targets for the commodity through 2020.
Gold recovered some of yesterday’s steep losses, perhaps setting up another $6-10 range before the next sharp $20 drop, gold’s short-term fate will likely be sealed by tomorrow’s non-farm payroll results and all indications are for a strong number which doesn’t bode well for the precious metal.
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