ECB rate change dominates sentiment

Heading into the close the FTSE 100 is down 50 points, having lost the momentum from its initial European-inspired rally.

The last time the European Central Bank cut interest rates was back in April, and markets initially rejoiced. This optimism quickly turned to fear about why the ECB, an organisation renowned for its slow decision-making, has felt the need to make the cut. The week is far from over, and with key pieces of the economic jigsaw puzzle yet to be released there is plenty of opportunity for further confusion.

UK markets

The FTSE 100 had been pulled up by its European counterparts on the back of the ECB’s interest rate cut. However, this was short-lived, and before the close markets turned red. The question must be: with the UK’s largest trading partner feeling that falling inflation is bad enough to cut interest rates by 25 basis points, what impact will Britain suffer? The macro picture has dominated traders' focus today, and looks set to dominate tomorrow's thinking too. That being said, the corporate machine is carrying on, and Morrisons has again seen sales falling. This was primarily because its online sales have yet to reduce the gulf between the firm and the other members of the big four supermarkets. Supergroup has seen second-quarter retail sales jump by 18.8%, as its audacious expansion plans overseas have been particularly successful.

European markets

Most of today’s activity has been triggered by the ECB’s decision to cut interest rates by 25 basis points, and the boost that has given to mainland European equities. It has been several months since the last change in interest rates, and the speed with which the ECB has made this decision has caught traders unprepared. It appears that President Mario Draghi and his team are no longer content to talk, but feel action is required. Questions are ringing around trading floors on the theme 'how bad are things behind the headline figures?' to instigate this action. Before the close of European markets, we had already seen this good news being viewed as bad news.

US markets

The initial boost that European equity markets received on the back of the ECB’s interest rate cut has quickly been negated, and the Dow is now trading down 25 points. Gaining even more headlines has been the launch of Twitter on the NYSE. The opening price of $45.06 was perilously close to the $44 that the IG grey market had been predicting over the last week. Considering that this is a company that has yet to make a profit, it will be interesting to see how far investor enthusiasm can drive it. The US has its own economic issues to consider over the course of today and tomorrow. The reappearance of the non-farm payroll figures after their brief sabbatical will be warmly welcomed, along with the opportunity to see the latest US unemployment rate figures.

Commodities

Having broken through the $106 level a couple of days ago, Brent crude has shown little inclination to make a quick bounceback. It looks more likely to test the mid-summer lows around the $100 level. Copper continues to drift serenely back down to the lower end of the trading range it has found itself in for the last four months. Gold traders’ confusion with the multitude of economic data being released has seen the precious metal looking particularly rudderless.

FX

The Bank of England, as expected, left interest rates unchanged. The ECB, on the other hand, decided to shake things up a bit by cutting rates 25 basis points. This triggered EUR/USD to drop by 150 pips within seconds. Although speculation had increased that the ECB would do this, the central bank's reputation for lethargy had left many doubting its ability to change tack so quickly. The first half of this week’s major economic data events is now out the way, and traders have started to focus on the US side of the equation and what the latest US unemployment rate will do to the delicate balance.

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