Markets Today: Easy

ECB President Draghi stepped up to the plate last night, setting equity markets alight and scuttling the EUR. Draghi effectively preannounced further easing in policy at its 3 December meeting.

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ECB President Draghi stepped up to the plate last night, setting equity markets alight and scuttling the EUR.  Rather than an expected non-event, Draghi effectively preannounced further easing in policy at its 3 December meeting saying that the “strength and persistence” concerns of growth prospects in emerging markets and possible repercussions for the Eurozone economy from developments in financial and commodity markets – which are slowing the return to inflation to target means the “degree of monetary policy accommodation will need to be re-examined added to is at our December policy meeting”.  More policy accommodation is on for December, whether that means extending QE, beefing up QE now, and/or another cut in interest rates taking the deposit rate further into negative territory.

He knew full well that by announcing a full-scale reassessment policy at the December meeting, the markets would build it in, and that’s what happened.  The Euro immediately gapped lower, dropping a big figure from 1.13 within minutes, trading in early Asia trade at around the 1.112 level. European equities surged, as did European bonds, the German 2y yield at a record low of

-0.316%, down 6bps, the Italian 10 year bond down a cool 15.6 bps to 1.45% less than 100 basis points over its German bund counterpart. In short, further ECB easing has been built in.

The Aussie was largely on the sidelines in a choppy night, not breaking new ground, trading between the high 71s and the low 72s, trading at 0.721 this morning.  AUD/EUR at 0.649.

In other news, US House Republican Paul Ryan was a step closer to getting the support of the various Republican House caucuses to be the new House Speaker with a vote likely mid next week.  Meanwhile the US Treasury delayed its two-year note auction previously scheduled 27 October, fearing it may not be able to settle on November 2 before the November 3 national debt ceiling limit bites.  The Treasury’s five and seven year auctions will proceed as planned, both settling of November 2.  It’s of course these be voted on as well once the new House speaker is appointed.

Separately, there was also an unsourced wire report the Chinese government is beefing up financing for local governments to boost infrastructure spending, double funding from 300b yuan to 600b.

Coming up

No local Aussie or Kiwi data today but China has its September property price report, recent reports revealing that Shanghai and Beijing prices have been strong again recently, including in the aftermath of Chinese equity market volatility.  This is yet to show into steel demand. China also has its Conference Board leading economic index and Japan there is the Oct Manufacturing PMI and its leading index out this afternoon. There was news yesterday that China’s private sector Caixin manufacturing PMI will no longer be published.

In Europe tonight there are the October preliminary PMIs for the Eurozone.  It’s light on for US data with only the Markit US manufacturing PMI for October.  Canada has its CPI, expected to be down 0.1% to annual rate of 1.1%, from 1.3%. UK has its CBI reported sales.

A busy week lies ahead next week from around mid-week with our CPI, the FOMC rate decision early Thursday morning our time as well is the RBNZ decision and that night, the first cut of US September quarter GDP. Market consensus looking for growth to ease back 3.9 1.7, they are right now that looks like stretch given the Atlanta fed’s GDP now estimate stand 0.9%.

Overnight

Equities salivating at the prospect of more QE: Eurostoxx 600 +2.0%, Dax +2.5%, CAC +2.3%, FTSE +0.4%.  Dow +319 points to 17,488, +1.9%, S&P 500 +1.9%, Nasdaq +1.6%, VIX 14.92 -10.7%.  Shanghai +1.4%, Mumbai +1.4%, Nikkei 225 +1.6% and ASX 200 +0.3%; ASX SPI futures this morning +1.5%.  US bond yields: 2s at 0.59% (-3), 10s at 2.02% (-0).  WTI oil at $45.42 (+0.5%), Brent at $48.19 (+0.7%), Malaysian Tapis (yesterday) $47.17 (-0.5%).  Gold at $1166.10/oz (-0.1%). Base metals: LME copper +1.1%, nickel +1.5%, aluminium -1.7%. Iron ore $52.2/t -1.2% Chinese steel rebar futures -0.2%. Soft commodities spot futures: wheat -0.8%, sugar +3.0%, cotton -2.7%, coffee -1.0%.  Euro Dec 14 CO2 emissions at €8.48/t (0.4%). The AUD/USD’s range overnight 0.7186-0.7237; indicative range today 0.7185-0.7235; the AUD/USD is 0.7213 now

US Existing Home Sales (Sep) 5.55M/4.7% (L: 5.31M/-4.8%; E: 5.39M/1.5%); Jobless claims (w/e 17 Oct, payrolls survey week) 259K (L: 255K; E: 265K); Chicago Fed National Activity Index (Sep) -0.37 (L: -0.41; E: -0.2); Leading Index (Sep) -0.2% (L: 0.1%; E: 0%); Kansas City Fed Manufacturing -1 (L: -8; E: -9); Canadian retail sales (Aug) 0.5% (L: 0.5%; E: +0.1%); ex autos flat (L: 0.0%; E: 0.2%).

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Markets Today: 23 October 2015 (PDF, 282KB)

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