ECB committed to stimulus

It was a busy night for global markets, as investors digested a raft of releases and events from Europe and the US.

Source: Bloomberg

In Europe, the BoE and ECB both kept policy unchanged. However, the latter’s press conference drew significant attention, as the central bank said it expects its balance sheet to move towards 2012 levels. Essentially, this implies the balance sheet is set to increase by around a trillion euros. At the same time, the ECB reinforced its commitment to using other unconventional policies if necessary. Additionally, Mario Draghi described  the commitment from the committee as unanimous, which suggests talk of a rift, earlier in the week, may have been overdone. However, some analysts felt the lack of commentary around sovereign bond purchases was a bit of a dampener. In the US, data continued to tick along with unemployment claims falling more than expected and bringing the four-week average down to 279,000. Optimism is running hot heading into today’s official non-farm payrolls print. Average hourly earnings will also carry some weight, as they feed through to inflation. Fed chair Janet Yellen will speak shortly after the jobs data release.

Euro extends losses

Price action wise, EUR/USD slipped further and is now trading below $1.2400. There isn’t much of a reason to be holding onto euros at the moment and the latest comments from the ECB reinforced that. This is the lowest since August 2012 and I feel traders will continue to sell the pair into strength. I expect to see further volatility in the pair today with quite a bit of activity on both sides of the equation. In Europe, we have German and French industrial production along with ECOFIN meetings. USD/JPY hit a high of ¥115.52 and will remain in focus heading into the payrolls data. This should also see the Nikkei pop higher at the open.

Big dividend for the ASX 200

Ahead of the local market open, we are calling the ASX 200 up 0.3% at 5,520. This takes into account around 20 points worth of dividends that come out of the physical market today. Our call has already been adjusted for this. The weakness we have been seeing through the commodities space this week will remain a factor but, for today, we could see some short covering, following the bounce in risk. I would remain sceptical about how far this move will run. Strength in the greenback also impacted AUD/USD which is back below $0.8600 heading into today’s RBA monetary policy statement.  I would, however, advise being cautious on shorts, ahead of today’s statement, as some analysts feel we could possibly get upgrades to inflation expectations and GDP.

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