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Europe Tumbles After ECB Decision, US Stocks Falter then Bounce Back Strongly

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Today's financial recap and tomorrow's financial outlook.

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US stocks had another very volatile day. The S&P 500 (SPX) opened up around flat, but began trading down after ECB President Mario Draghi's press conference in the early morning. At the conference, Draghi made no new changes, but announced the full details of its asset-backed securities (ABS) purchase program. The program will begin this month with covered bonds and be expanded to ABS in the first quarter of 2015. The program will last for at least two years, and purchases are not expected to reach more than 1 trillion Euros over time. Rates were left unchanged, as expected.

The S&P 500 fell as much as 1.03% before Europe closed and then bounced sharply as selling volume intensified. The benchmark index ended up closing exactly unchanged, to the penny, for today's session. High yield bonds also began to show some signs of life with spreads tightening by four basis points during the session. Spreads had widened almost every day during the month of September.

In response to the ECB decision, the European stocks were hit very hard. The Italian FTSEMIB - the de facto gauge for risk sentiment on further ECB easing - lost 3.92% for the day and was the worst performer on an outright and risk-adjusted basis. The Euro gained modestly, but many investors looked past the momentary letdown that a broader asset purchase program was not announced.

The US dollar was down as much as 0.50% during the session. Overnight, former Japanese Finance Minister Fuji stated that due to the recent Yen weakness the Bank of Japan may be forced to intervene directly in the market to prevent it from falling further. This is by far the strongest message sent by any public policymaker. The Yen has fallen by $1.50 versus the US dollar over the past two days.

Weekly jobless claims fell to 287K in the past week versus the 297K expected. The prior week was revised up to 295K. Jobless claims have remained around the 300K level, signifying that jobs are growing near their peak, since April of this year.

Tomorrow's Financial Outlook

Tomorrow morning is the September government payrolls report. Net job growth is expected to clock in at 215K and the prior month's 149K figure is expected to be revised up by a substantial amount. The unemployment rate is expected to remain unchanged at 6.1%. After Wednesday's ADP private payrolls report, many market participants pared back the possibility of a blowout report tomorrow, so there is the potential for an upside surprise. A report that is below 200K and did not see a significant revision may result in a significant selloff in risk assets and a corresponding rally in Treasuries.

Overnight the Chinese non-manufacturing PMI is scheduled to be reported. Also scheduled to  be reported are the UK and Japanese services PMI's. A major driver will continue to be the reactions from various forecasters on how the latest ECB news will drive assets moving forward.

The only major earnings report scheduled for tomorrow is Constellation Brands (STZ).

Twitter: @Minyanville

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No positions in stocks mentioned.

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