ECB’s extra stimulus is still not enough

The European Central Bank (ECB) revealed additional stimulus to spur economic activity in the eurozone but the markets were unimpressed.

ECB president, Mario Draghi
Source: Bloomberg

Equity markets in Europe were jolted higher by the announcement of extra easing from the European Central Bank (ECB) and the euro tumbled on the back of the announcement. But the moves didn’t last long and stocks are now in negative territory and the single currency rallied in the afternoon.

The rally in global equities that has been in place since early February was showing signs of fatigue this week, and now stocks are in the red after the ECB revealed more monetary easing, it is concerning. If the cutting of all three rates, beefing up the bond buying scheme and launching new TLTRO’s isn’t enough to propel stocks higher then what is? Not being able to sustain a rally is a bearish sign, and this decline may not see buyers enter the fold as there are no major events on the horizon that would warrant buying the pullback, which could lead to a further sell-off from here.

Oil sold-off heavily after it was rumored the meeting of oil producing nations who were set to meet later this month to discuss a production freeze may not go ahead. The correlation between the energy market and equities continues to be high and this added to the downward momentum in stocks.

In London, commodity companies like BP, Royal Dutch Shell, BHP Billiton and Rio Tinto suffered while defensive stocks like Shire, Imperial Brands and Unilever were in demand. This underlines what little risk appetite there is.

Within the EU 50, the banks were the biggest gainers and UniCredit, Deutsche Bank and BNP Paribas are higher as Mario Draghi is forcing them to be more aggressive in their lending. Since the rate they can borrow from the ECB at has been lowered, we may see renewed interest in them. Almost 90% of EU 50 stocks are at four-week highs, which compares with 41% in the FTSE 100, so buyers are clearly buying the biggest names in the eurozone, another indication traders are in risk-off mode.

The US market had a similar move to that in Europe and Wall Street and the US 500 are currently offside. Investors are steering clear of anything commodity related and Exxon, Caterpillar and 3M are leading the charge lower. UnitedHealth and Merck & Co are registering small gains as traders seek out safe heaven stocks. Currently, 70% of the Wall Street components are at four-week highs and only 48% of the US 500 constituents are at four-week highs as investors are keen to buy-up the blue chip stocks while the wider market is declining.   

FTSE risers and fallers (as of 4.15pm)

Company % change Index points
Aviva +2.57 +1.86
Shire +2 +1.71
Imperial Brands +0.88 +1.22
Legal & General Group +1.11 +0.60
National Grid +0.34 +0.48

 

Company % change Index points
BP -2.78 -7.04
Royal Dutch Shell - A -2.28 -6.32
Royal Dutch Shell - B -2.01 -4.96
Barclays -3.45 -3.78
Prudential -2.27 -3.08

The night ahead

Central banker speeches:

9.15pm: Bank of Canada governor Stephen Poloz is speaking in Ottawa.

The day ahead

Economic data:

7am – German CPI (February, final): MoM expected -0.8%, prior 0.4%, YoY expected 0.0%, prior 0.5%.

9.30am – UK trade balance (January): the trade deficit is expected to expand to £2.8 billion from £2.7 billion.

1.30pm – Canada employment change (February) and unemployment rate (February): the employment change is tipped to rise by 11,700 and that compares with a decline of 5,700 in January. Unemployment is anticipated to remain at 7.2%.

Corporate reporting:

UK:  Old Mutual, JD Wetherspoon, Sthree

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