Daily Market Reports | Mar 11 2016
By Greg Peel
The Dow closed down 5 points while the S&P was flat at 1989 and the Nasdaq fell 0.3%.
Nothing to See
China’s CPI jumped to 2.3% year on year in February, up from 1.8% in January. It was the biggest monthly jump since mid-2014, but nothing to get excited about.
It was all about a 7.6% jump in food prices, driven by a combination of the Lunar New Year holiday week of feasting, and cold weather. Fuel prices also saw a rebound in the month. Beijing neither seasonally adjusts its data nor provides a core CPI reading (ex food & energy), so realistically we need to wait to see what transpires over the next couple of months.
The Chinese data were never really going to have much effect on the local bourse yesterday as all and sundry awaited last night’s ECB meeting. The ASX200 made a few attempts to rally 20-odd points but failed each time, before settling relatively square. Sectors traded off small ups and downs, with a 1.5% drop in healthcare the only move of note.
Say What?
At last night’s ECB policy meeting, Mario Draghi pulled out his bazooka and waved it about for all to see. Any doubts about being overly cautious were quickly dismissed as the ECB rattled off a full shopping list of fresh stimulus measures.
The central bank has cut its key lending rate to zero from 0.05%, cut its deposit rate to minus 0.4% from minus 0.3%, expanded the size of its monthly bond purchases (QE) to E80bn from a previous E60bn, and expanded the breath of bond purchases to include investment grade European corporate debt. It was everything and more – certainly more than markets were expecting.
Consequently, the euro tanked 1%, as is the intention of the stimulus. The German stock market jumped 2.5%, and took all other European stock markets along with it. The ECB statement was released just in time for the open in New York, and the Dow shot up over a hundred points.
Then Mario Draghi held a press conference, at which he read a prepared statement. In that statement Draghi declared that he did not anticipate any need to cut rates further.
Come again?
Does that mean: (a) this new and comprehensive stimulus package will do the trick; or (b) that’s it folks – if this doesn’t work, there’s nothing else?
In Europe, panic set in. The interpretation was (b). The euro spun around and rallied back 3%, to be up 2% on the session – one of the currency’s biggest turnarounds ever posted. Having been up 2.5%, the German stock market closed down 2.3%. France closed down 1.7% and London 1.8%. It was only early in New York, and the Dow fell from up one hundred to down two hundred points by lunchtime.
But hang on. Did Draghi really mean (b)? Surely not. Surely he meant (a). Indeed, he even qualified his “no further need to cut” suggestion by adding words to the effect of “unless things change in the meantime”. The debate on Wall Street was furious. But by the closing bell it was clear the ultimate assumption was (a). Following all the rocking and rolling, the Dow closed flat.
So where did it all leave us? Well, Wall Street may have returned to base camp but the euro is still up there. The US dollar index is down 1.0% at 96.16 and the Aussie dollar has fallen 2% against the euro and half a percent against the greenback to US$0.7445.
Gold is up US$15.00 at US$1267.80/oz, which is what one would expect from boosted central bank stimulus, even if gold is down against the euro.
Attention now turns to next week’s Fed meeting. Will the Fed feed global central bank divergence and make a hawkish statement with regard its cash rate? Or is Japan in negative and the ECB now hurling in the kitchen sink enough to keep the Fed at bay irrespective of US economic forecasts?
Oh, and the Bank of Japan meets on the day before the Fed statement release.
Commodities
The thing about central bank stimulus is that it’s a double-edged sword. A bigger than expected stimulus package can either be seen as wonderful news, as it should help boost the economy, or terrible news, because it means the economy must be in much worse shape than assumed. Throw in last night’s currency histrionics, and one can understand why commodity markets were a bit all over the shop as well.
West Texas crude is down US32c at US$37.83/bbl and Brent is down US73c at US$40.08/bbl.
Base metal prices are all down half to one percent.
European stimulus is a world away from the spot iron ore market, but iron ore is down US$2.20 at US$57.40/t. It’s a big move, but unlikely to evoke too much angst given nobody really believed in the spike up to over 60 earlier this week anyway.
Today
The SPI Overnight closed down 6 points.
Tomorrow, China will release February industrial production, retail sales and fixed asset numbers.
On Sunday, the US goes on to summer time, meaning that come Tuesday morning, the NYSE will close at 7am Sydney time.
Rudi will link with Sky Business via Skype and discuss broker calls at 11.15am today.
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