Equities rise on possibility of QE

Heading into the close the FTSE 100 is up 14 points, at 6668, as miners form the foundation of this rally.

Mario Draghi talking
Source: Bloomberg

Draghi comments lift stocks

In London, stocks swung to positive territory after Mario Draghi discussed the possibility of going down the quantitative easing route. In an ideal world, Mr Draghi wouldn’t have to add government bonds to his buying scheme, but desperate times could require desperate measures.

All traders have to do is look to Japan; QE is a sure way to set a fire under the stock market but there is no guarantee that it will work. Equity dealers are becoming too dependent on stimulus packages from central banks.

The new trade deal between China and Australia sent money flooding back into the mining sector; minerals have been bedrock of the two nation’s economic relationship over the past decade. 

Japanese recovery in doubt

In the US, the Dow Jones is three points higher at 17,637. US traders were stunned that the Japanese slipped back into recession. The Federal Reserve’s QE scheme managed to turn the economy around, but dealers across the pond are beginning to think the wheels are coming off the recovery.

Shares in Halliburton are off seven percent after the oil giant made an offer for Baker Hughes. Shareholders in Halliburton are not pleased that the offer will value shares in Baker Hughes at over $78, a 16% premium to the current price. When oil has plummeted to a multi-year low is it wise to be going on the acquisition trail?

Doller continues to weigh on gold

The strong US dollar has put a dent in the price of gold again. The precious metal made several attempts on the $1190 but ran out of steam on each occasion. The very mention of QE from Mario Draghi has prompted traders to plough money back into equity markets. Gold is on track for its second year of annual declines, and if the ECB does grab the QE baton from the Fed the metal will lose even more appeal.

Brent oil is still stuck to the 50-hour moving average; the landside selloff in the energy market over the past few months is showing no sign of letting up, and the OPEC meeting at the end of the month is the only glimmer of hope on the immediate horizon for the commodity.

Sterling heads lower

Sterling has been driven lower by the Bank of England’s chief economist Andy Haldane, who is distressed about the downside risks. The fear of deflation is contagious as central banks both sides of the English Channel are fretting about it. The BoE is making it very clear that interest rates won’t be changing anytime soon, and traders are pencilling in the back end of 2015 for a the first rate rise.

Bundesbank voiced its opposition to further the stimulus package as the German central bank feels it isn’t required. As long as the German economy remains still I suspect the Bundesbank will maintain its ‘no’ position.

Mario Draghi talked the euro lower again by stating that government bonds could be purchased if the situation requires it, although he is hoping it won’t come to that.

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