Rumours mount ahead of ECB decision
The hours are being counted down to the ECB meeting and the rumour mill is going into overdrive. Reports suggest that the bank was looking at €50 billion a month in sovereign bond purchases for at least a year. Apparent confirmation of the theory that quantitative easing is coming was enough to cause markets to rally, although a denial from the institution itself was enough to stymie any further move higher. The risk of such moves is that they increase the chance of disappointment when Mario Draghi actually appears in front of journalists tomorrow. It might be the ECB’s last chance to regain control of the situation, so Mr Draghi has to make every shot count.
At least in London there was enough corporate data for the FTSE 100 to actually make decent gains. Pride of place today goes to Pearson, which struck a confident tone in its figures, pointing towards the first growth for the company since 2012. Such a bold prediction was enough to entice investors back, pushing the shares to a twelve-month high.
US markets still lethargic
US markets have continued their sulky form this afternoon, refusing to budge too far from their current levels despite a storming set of earnings from Netflix and ECB headlines that seemingly sent every other market into a frenzy. One can admire their sanguine approach, even if it seems somewhat misplaced given the potentially seismic event that is about to hit tomorrow.
A surprise rate cut from the Canadian central bank underscores how the atmosphere has shifted in recent days, as other central banks try to steal the ECB’s thunder. If Mr Draghi does do enough tomorrow, however, it is likely that US markets will catch the rally bug as well, shaking them from their current torpor.
Gold hits five-month high
Gold saw a $1300 print for the first time since August this morning, as ECB easing hopes pushed the metal higher. In a world of negative rates, gold’s 0% yield has become much more attractive. However the gains were wiped out as the ECB headlines crossed the wires, suggesting that people were taking the opportunity to book gains after a near 10% move higher for the metal so far during 2015.
BoE releases dovish minutes
The doves reign triumphant once again on the Monetary Policy Committee as minutes from the Bank of England's latest meeting showed that the two persistent hawks had changed their ways. The bank seems to be engaged in a bout of goal-post moving, having previously said there would be a hike in rates when wage growth picked up. Picked up it has, but not to a sufficient level it seems. Thus they have opted to wait, while the market duly pushes back its expectations on a rate increase once again.
The euro was rocked by the ECB headlines, but it seems that FX traders at least were expecting a lot more in monthly purchases for a lot longer, given that EUR/USD was able to rally to a four-day high.
Many traders will, by now, have had their fill of central bank surprises, yet this has not deterred the Bank of Canada. The unexpected cut by one quarter of a percentage point to 0.75% saw the loonie fall to a five-year low againt the dollar. The sharp drop in oil prices is posing a problem for the Canadian economy.
The race to the bottom continues.