Markets build momentum on ECB reports

European Central Bank news saw to it that the buoyant atmosphere in equity markets was prolonged into a second consecutive day, as investors look to put last week’s volatility firmly behind them.

Mario Draghi
Source: Bloomberg

ECB bond purchase reports builds market momentum

Leaving aside the small point of whether the ECB is actually considering a new bond purchase programme, the reports of a possible plan were enough to give markets the additional momentum they needed, building on the broadly upbeat atmosphere created by Apple’s excellent earnings last night.

Disappointingly, Trafalgar Day sees the FTSE 100 lagging behind France and Spain but the ‘Nelson touch’ still applies to most of the UK market. Value hunters in particular have found a niche in the homebuilder sector while oil firms are enjoying a lift thanks to a bounce in crude prices on hopes of increased Chinese demand. The broad turnaround in sentiment has been quite remarkable, with the doom callers of last week falling silent as buyers step back in. As usual, the market got carried away and the steep declines of late have tempted in the dip buyers once more. 

McDonald's in decline

The gains today have come in spite of some disappointing figures from American icons like McDonald's, Coca-Cola and Lockheed, but Apple trumps these easily. Reports of the demise of the titan built by Steve Jobs have clearly been premature and the iPhone sales figures remind us how powerful the pull of a new gadget really is.

However, McDonald's seems to be locked in a permanent spiral of decline, with even its newer breakfast offerings seeing a drop in demand. McDonald's needs to arrest the collapse in earnings, and while the buyers have stepped in today to take the stock off the lows, a failure to construct a rescue plan will see the shares head back to two-year lows in short order.

Risk appetite revival sparks crude oil prices

ECB bond buying rumours have given a lift to precious metals today while crude oil prices continue to benefit from the general revival of risk appetite across markets. The prospect of the ECB stepping in with some form of bond buying activity is always likely to revive gold to some degree, while the bounce from sub-$1200 shows that there are still those in this market that view gold as a promising investment, geopolitical problems or not. Indian buying will play its part too, and should give the metal the impetus to make further gains in the direction of $1260.

For crude watchers, the danger is that the move off the lows seen last week is merely the excuse to push the price down once more, especially since Saudi Arabia’s production is not about to see any reductions in the near future. 

GBP/USD suffers dip

The ECB news has provided the rationale for further euro selling, proving once again that Mario Draghi doesn’t actually need to do very much at all to provoke a drop in the single currency. Still, the corporate bond plan might have some legs to it given that it offers broader opportunities for the ECB to play its hand than is the case in other markets.

For sterling watchers tomorrow’s Bank of England minutes will have lost some of their relevance given the policy wobbles we saw last week regarding interest rates. Still, signs of a renewed shifting to a more dovish stance could mean that today’s small drop in GBP/USD turns into something more substantial.

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.