– When you are a central banker with only one bullet left it’s best to use it wisely and to greatest effect. This is a lesson ECB boss Mario Draghi has heeded both during the depths of the EU banking crisis and then again overnight when he announced a surprise rate cut to 0.05% to go with the announced quantitative easing where the ECB will buy covered bonds and other asset backed securities to pump cash into the European economy. At present the volume is not specified.
– It had an immediate effect on the Euro, which fell more than 2 cents from the mid 1.3150 region to sit at 1.2939 this morning.
– Equally European stocks liked what they saw, with the CAC rising 1.65% to 4,495, the DAX up 1.01% to 9,724 (through resistance), while stocks in Milan and Madrid were 2.82% and 1.96% higher. The FTSE was largely unchanged up 0.06% to 6,878.
– However, US stocks were less excited, finishing slightly in the red as markets await non-farm payrolls tonight. The Dow was off just 0.05% at 17,070, the Nasdaq dipped 0.23% to 4,562, while the S&P 200 continues to stall here around 2000 finishing off 0.14% at 1998.
– Data in the US was mixed with a solid ISM non-manufacturing PMI for August (59.6 from 58.9 in July), but jobless claims rose a little to 302,000 and the ADP private payrolls report was a little weaker than expected up 204,000 against 220,000 expected.
– The impact on the local market has been small with the SPI 200 futures off just 2 points to 5631 after a weaker day on the physical ASX yesterday. Iron ore was lower again overnight which might weigh today.
– In Asia yesterday the Nikkei lost 0.33% to 15,676 even though the BoJ continues with its super accomodative monetary policy. The Hang Seng dipped 0.08% to 25, 298 but the Shanghai exchange rose 0.8% and is now back above 2,300 closing yesterday at 2,307 – a very solid recovery over the past week.
– On bond markets US 10s sold off 5 points rising to 2.45%, German 10s rose 2 to 0.98%, while Gilts were also up 2 to 2.38%. rates in Italy and Spain, however, rallied hard on the ECB moves, falling 12 points and 9 points respectively to both sit below US and UK bonds.
– On currency markets it was a night of US dollar strength with the Euro tanking as noted above. Sterling is also sharply lower at 1.6318 and USDJPY is up at 105.29. The Aussie however remains strong and even though it is off its high of 0.9392, at 0.9345 the performance is very solid. On the crosses the Aussie has made solid gains as well.
– On commodity markets there was more bad news for iron ore with September futures down 56 cents a tonne to $84.71, while December futures fell $1.66 to $83.37. September Newcastle coal fell 50 cents to $66.55 a tonne, while December futures fell 80 cents to $68.15.
– Nymex crude fell $1.04 to $94.50, gold dipped back to $1,62, silver has slipped under $19 an ounce while copper is at $3.14 a pound. On the Ags, corn fell 1.61%, wheat rose 0.33% and soybeans fell 1.53%.
– Datawise its all about the US non-farm payrolls tonight at 10.30pm with the market expecting a rise of 225,000. EU GDP is out prior but that is a little historic now after the ECB action, but German IP will be watched closely.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Okay, it’s not a stock but it is driving the price of a lot of stocks, so I thought readers may be interested in a quick look at the iron ore chart.
One thing that always fascinates me about commodity markets is how far prices can move when the demand/supply balance tips from deficit to surplus or vice versa. Producers or buyers take time to change their business models (close mines, factories or whatever). In the meantime they are forced to meet the market and momentum plays a big part (think oil going from $10 to $147 or gold from $250 to $1920).
The chart above is the daily index of spot prices for 62% fines imported to Tjianjin in China. Now that we’ve broken under the 2012 low of $87, there’s not much on the horizon. The market did a bit of work around $79/80 back in 2009. This represents the next minor support level. Resistance is around $94.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC