– He did it, finally! Mario Draghi seems to have built a consensus on the ECB board to expand the central bank’s balance sheet by more than 1 trillion euros – back to levels not seen since 2012.
– In fact, it was the reference to the 2012 size of the ECB balance sheet which was the catalyst for a massive sell-off in the euro, as it underlined Draghi’s claims that despite rumours earlier this week of disharmony on the Governing Council, “the dinner went better than expected.” He added that “The Governing Council is unanimous in its commitment to using additional unconventional instruments within its mandate.” Which means Draghi can act on his rhetoric as required given he highlighted that the downside risks to the EU economy predominate.
– The key here, for global markets and traders, is that while the Fed has exited the helicopter money-dropping business, both the Bank of Japan and the ECB are more than stepping into the breach. So global liquidity will continue to expand. That will have large impacts on relative asset prices around the globe and reinforce the US dollar return to predominance and weight on the euro, yen and Aussie. Indeed, CBA head of currency strategy, Richard Grace reckons the Aussie can’t “remain immune” from further falls – you can find more here
– Draghi’s plan helped stocks across the continent and in the US, where fresh all-time highs for the S&P 500 have been reached. At the close, the S&P 500 is up 7 to 2,031 (an all-time high close), the Nasdaq is up 0.37% at 4,638 and the Dow rose 0.40% to 17,554. Also positive according to the NAB economics and strategy team is that last night saw “a further drop in US weekly jobless claims, where the 4-week average is now at its lowest level since mid-2000 when, incidentally, the US unemployment rate sat at just 4.0%.” non-farms tonight will be huge.
– In Europe, traders in the big markets were happy to take stocks higher but they closed below their peaks. The FTSE rose 0.18% to 6,551, the DAX was 0.66% higher at 9,377 and the CAC in Paris rose 0.47% to 4,228. In Milan and Madrid, however, markets dipped 0.73% and 0.14% respectively.
– Locally, overnight on the ASX futures market, traders ignored yesterday’s trade and pushed it up 29 points to 5,522 bid this morning. Iron ore and coal both fell again and gold remains becalmed, so it might be an interesting day on the local market.
– In Asia yesterday, the Nikkei dipped back after the USDJPY surged to 115.50 before reversing more than 100 points, taking sentiment and stocks with it. The fall of 0.86% to 16,792 must be viewed in the context of the previous five-session gain of 10%+. The Hang Seng dipped 0.2% to 23,649 while stocks in Shanghai were up 0.28% to 2,426. It is a bit of a data vacuum in Asia today with only the Japanese foreign investment data out.
– On Bond markets, US 10s dipped to 2.38%, German 10s closed at 0.79% and Gilts fell to 2.25%.
– On Currency markets, the euro was the big mover, touching a two-year low of 1.2381 after Draghi’s shock and awe got real. It sits at 1.2385 as I write now. Sterling lost 0.87%, falling from a high of 1.6001 to 1.5836 now. USDJPY reversed off the acute weakness at 115.50 yesterday and is at 14.91 now. The Aussie found some support from the yen’s reversal and it is at 0.8573 this morning.
– On Commodities, the bad news keeps flowing for Australia’s terms of trade with the December iron ore futures down another 57 cents a tonne to $74.85. Newcastle coal for the same month dipped 30 cents to $62.15 a tonne – that’s another 5-year low.
– Elsewhere, Nymex crude dipped 0.92% to $77.96, gold fell to $1,142, silver is at $15.43 and copper is at $3.0145 a pound. On the Ags, corn was largely unchanged, wheat fell 0.81% but soybeans rallied hard up 4.48%.
On the data front, non-farm payrolls is out tonight and as usual it’s going to be a huge data point. This is particularly the case, with Europe looking weak and the Fed’s QE end standing in contrast to action from the BoJ and ECB. Before that though, we get the RBA’s quarterly statement on monetary policy this morning at 11.30 AEDT and then tonight we get German industrial production and trade together with trade in France and the UK as well.