Traders exit equities ahead of the ECB meting

Stock have slipped this morning as investors decide to exit their long positions in advance of Thursday’s ECB meeting.

DAX trader on the phone
Source: Bloomberg

The equity market rally that has been in place since mid-February has taken a breather. Traders who have rode the rally for the past few weeks have cashed in the positions rather than run the risk of a December-style European Central Bank (ECB) meeting when Mario Draghi didn’t deliver enough easing. Today’s move looks like a temporary pause rather than the beginning of a U-turn.

Taking fresh short positions before the much-awaited ECB meeting could prove to be costly. Even though investors are cautious Mr Draghi may not be as dovish as he is letting on, today’s pullback may entice some buyers into the fold.

The Chinese authorities are aiming for economic growth of at least 6.5% each year for the next five years, and Beijing intends to restructure state controlled businesses. A Chinese official stated there will be no hard-landing but that wasn’t enough to convince traders to buy commodity stocks this morning as the sector has lost the most ground in London.

While the FTSE 100 remains above 6150 we may see a push higher and bulls will be looking to 6200. If the DAX stays north of 9695 its outlook will be positive and the 9850 area will be the next region to watch.

EUR/USD is under pressure as the ECB meeting this week is at the forefront of traders’ minds. The unexpected swing into negative territory for the eurozone’s CPI and decline in core CPI would back up the need to introduce extra easing this week. While EUR/USD remains under $1.10, it will be negative. GBP/USD pulled back overnight after enjoying a strong start to the month. The currency pair still has the Brexit risk hanging over it and the wider downward trend is still in place. If it stays under $1.4248 we could see further losses.

Gold is in positive territory this morning as traders are still dining out on Friday’s US job report which turned out to be less hawkish than initially thought. The disappointing average hourly earnings numbers will hold back the US central bank from hiking rates any time soon which will assist gold’s rally. While the metal holds above $1250 its outlook will be positive and $1268.8 is the next big resistance level in sight.

The energy market is edging higher as the Baker Hughes rig count report showed the number of oil rigs in the US dropped for its eleventh consecutive week. US oil production is at its lowest level since November 2014 and the drop off in production is pushing prices higher. The short-term fundamentals backup the short-term upward trend in price and WTI buyers will be keeping an eye on $38 and Brent bulls will be focused on $40. The big picture is still dominated by over-supply and Barclays has stated the bounce back in price is on ‘wobbly legs’. 

 FTSE risers and fallers (as of 9.30am)

Company % change Index points
Royal Dutch Shell B +1.45 +3.57
HSBC Holdings +0.97 +3.34
Vodafone Group +1.27 +2.9
Glencore +3.66 +2.66
BP +0.92 +2.41

 

Company % change Index points
Old Mutual -8.24 -2.82
WPP -1.7 -1.31
GlaxoSmithKline -0.44 -1.13
St James's Place -5.12 -0.88
National Grid -0.62 -0.86

The day ahead

Economic data:

11.50pm – Japan GDP (Q4, final): MoM expected -0.4%, prior 0.3%. YoY expected -1.4%, prior 1.3%.

Central banker speeches: 

5pm: Fed member Lael Brainard is speaking in Washington DC.

5.30pm: Fed member Stanley Fischer is speaking in Washington DC.

11.20pm: RBA deputy governor Philip Loew is speaking in Adelaide. 

Corporate reporting:

US: Urban Outfitters Inc

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