Draghi’s comments prop up equity rally

Mario Draghi helped stock markets finish on a positive note as he managed to talk the euro lower.

ECB president, Mario Draghi
Source: Bloomberg

The European Central Bank (ECB)’s chief’s hint at additional easing at the March ECB meeting ensured equity markets held onto the rally they built up in the first-half of the trading session. Mr Draghi has a long history of talking about stimulus packages but a poor track record of actually delivering additional easing. The head of the ECB can’t take credit for the strong finish to European stock markets today as the gains were already accumulated before he suggested more stimulus is on its way.

Stocks have struggled to hang on to any decent rally recently and it is a worrying sign a big hint about extra monetary policy failed to give extra momentum to the early-morning rally. A number of the eurozone banks racked up modest gains today and it is concerning Commerzbank and Deutsche Bank finished in the red because traders view the German banking system as the most stable in the eurozone. If they can’t benefit from Draghi’s indication of additional easing, who can?

The biggest benefactors from today’s rally were pharmaceuticals, tobacco companies and industrial stocks.The fact traders are targeting defensive shares proves they don’t have major confidence in the equity markets at the moment.  

Trading volumes will be low in indices as the US equity market is closed for Presidents Day and US futures were dragged higher by the positive rally in Europe but both have given back a small portion of the gains. While the S&P 500 holds above 1882, further gains are possible and bulls will be looking towards 1896. The Dow Jones has been on the rise since 11 February and the next big resistance level on the horizon is 16,265.  

Mr Draghi did a very good job of talking the euro lower and as far as he is concerned the weaker it is the better. Traders are listening to Mario Draghi for now and EUR/USD is continuing its move lower, but whether he will deliver additional QE next month is a different story. If EUR/USD stays under $1.1160 the outlook will be bearish and sellers will be looking towards to $1.1086.

Gold edged lower in the afternoon session and the move could be characterised as a gentle slide rather than a severe sell-off. The precious metal may make its way down to $1200, but if it holds above that mark buyers could be tempted back into the market. Rallies in gold will run into resistance at $1214 and $1232.

The move higher in the energy market seemed to be running out of steam and WTI failed to clear $32, and Brent has been bouncing around $34. Both levels will need to be cleared before traders can become more confident in the rally. 

FTSE 100 risers and fallers (as of 4.35pm) 

Company % change Index points
Reckitt Benckiser Group +6.79 +10.04
GlaxoSmithKline +3.48 +9
AstraZeneca +2.58 +5.14
Diageo +2.9 +5
British American Tobacco +1.79 +4.83

 

Company % change Index points
Randgold Resources Ltd -2.03 -0.45
SABMiller -0.24 -0.36
BHP Billiton -0.43 -0.24
Fresnillo -2.62 -0.15
Berkeley Group Holdings -0.63 -0.09

The day ahead

Economic data:
12.30am: RBA monetary policy meeting minutes
9.30am – UK CPI (January): MoM expected -0.7%, prior 0.1% and YoY expected 0.3%, prior 0.2%.
10am – German ZEW economic sentiment (February): expected 11.1, prior 10.2.
3pm – US NAHB housing market index (February): expected 60, prior 59.6.

Corporate reporting:
UK:
Pendragon, Anglo American
US: Liberty Global, BXLT-US

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