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Mario Draghi is trying everything to promote lending into the real economy. Naturally we need to see the private sector warm to the measures and actually show demand for credit. It’s all well and good offering fixed rate loans to banks to promote lending, but if there simply isn’t the end demand then it’s useless. Still, it seems everything announced was generally in the price, and to some degree disappointed in the sense that the refinancing rate was cut less than expected, while the ECB also gave off the impression it literally had no more easing left in its armoury.
The Targeted Long-term refinancing Operation (TLTRO) could help, but it’s going to be drip fed into the market and will amount to an around a third of what we saw in 2011 and 2012. EUR/USD fell to 1.3503 after the press conference, but has seen good short covering as the market felt the barriers now to QE are very high. While the effects of what we have seen will take many months to work its way through, it seems there is uncertainty whether this is another ‘do whatever it takes moment’. A strong US payrolls print tonight could cause EUR/USD to rally back to the 1.3800 area.
After trading above 10,000 the German index settled back at 9947. It seems logical that if the ECB are the easiest central bank around then the European equity markets will outperform. With this in mind we should continue to see outperformance from the DAX, CAC and notably the peripheral equity markets.
Another record high for the US equity market. Clearly traders in the US have been appeased by what they saw from the ECB. The underlying market trend is strong, with short to medium-term moving averages pushing higher and traders will be keen to look out for a close tonight above 1928 and above trend resistance drawn from the 2011 pivot (on the weekly chart). It’s all about US payrolls tonight (22:30 AEST) with 215,000 jobs expected to be created, so a good number here could keep the US market bid, although I am keen to keep an eye on the inflation metrics, such as hourly earnings and hours worked.
The trend in OSH is higher, however there is some indecision appearing on the daily chart. There are some signs a pullbacks could be on the cards. Stochastics have pulled under the 80 level, although the risk is we get a false signal, while the MACD has crossed below the signal line. There have been some calls to switch into STO, so a potentially lower risk strategy could be to short OSH and go long STO as a pairs trade. Here one would need to match of equity exposure, so as not create a net bias.