Dismal eurozone inflation figures boost volatility

Heading into the close the FTSE 100 is up 73 points, at 6439, as all hopes are pinned on European Central Bank quantitative easing.

Eurozone sign
Source: Bloomberg

UK markets ride QE gravy train

Volatility is high as equity traders cheered the disappointing inflation figures from the eurozone. The struggling southern European nations are dragging down their northern counterparts, and when you add crumbling commodity prices into the mix the result is deflation. Mario Draghi will find it very difficult to deny the eurozone is suffering from a fall in the cost of living at the ECB meeting later this month, and this could force him to fire up the printing press. Traders still can’t shake the looming political uncertainty in Greece but for now they are content to ride the QE gravy train. 

ADP figures raise hopes for NFP

The Dow Jones is up 159 points, at 17,531, as the solid ADP employment figures sharpened traders’ minds for the jobs report on Friday. The jump in the number of private sector jobs created in December was well received by dealers, and the upward revision of the November report was the icing on the cake.

The Federal Reserve minutes this evening could add to the excitement as, although the phrase ‘considerable time’ was included in the December statement, the change in tone suggested rates will not remain rock bottom forever. The US central bank will start laying the ground work for a rate rise well in advance and any change in language will be under scrutiny.

Brent back above $50/barrel

Gold has quickly given up its previous gains and traders turn their attention back to European stocks in the hope of extra stimulus from the ECB. Recently gold hasn’t been able to hang onto a rally and today is no different, and the precious metal has been dropped like a hot potato by dealers as they climb aboard the European QE band wagon.

Oil is in positive territory and, dare I say it, may even close higher on the day. The move below $50 a barrel for Brent was short lived and traders raced to cover their short positions. Whether this upward move is the beginning of a correction or just a blip of buying before the next round of shorting remains to be seen.

Euro suffers after EZ CPI report

The euro has endured another round of selling today after the eurozone CPI report showed a move into negative territory in December. With just over two weeks to the next ECB meeting, the speculation about full-on QE is rising fast. Mario Draghi wants to keep the QE card up his sleeve but, in light of today’s inflation data, he may be forced to play it sooner than he would have liked.

Sterling is struggling to halt the advancement of the greenback and the jump in the ADP jobs report is adding to the pound's suffering.

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