Size, Scope of ECB Easing Plans Surpasses Analyst Expectations
Today's financial recap and tomorrow's financial outlook.
The reaction in the Euro was to sell off briskly versus the other major currencies. The EURUSD FX cross fell by 2.4% to an 11-year low for one of its worst days in the past decade. European equities and sovereign bonds both gained, led by Italy. The Italian FTSEMIB rose 2.44% and was the best performer in Europe and its 10yr sovereign bond yield fell by 14bps to 1.55%. Emerging market equities also gained as investors believed that the European money would find its way into other risk-sensitive assets. The MSCI Emerging Markets Index (MXEF) gained 2% by the end of trading, even though the US dollar strengthened by a full percent.
US equities also rose strongly in conjunction with the strength in overseas. The S&P 500 (SPX) weakened early in the session, but rallied as the day wore on. An afternoon break of the day's high ignited another run higher into the close of the session to finish +1.53%. The run up was led by financial stocks, which previously had been the worst performing sector to date. Inside of that sector, real estate investment trusts (REITs) performed the best, up more than 2%. US Treasuries trading was erratic with the 10yr yield at one point during the morning 8bps higher, and 8bps lower for the session. Ultimately it settled flat for the day.
Crude oil fell by as much as 4% today following two very negative inventory reports. Last night, the API report showed a very sizable build in crude supplies. Today, the Department of Energy's (DOE) inventory report had the largest build in stocks from the prior week since 2001, and total crude inventories rose to their highest levels for this time of year in at least 80 years. Crude oil ultimately closed down exactly 3%.
Tomorrow's Financial Outlook
It's likely that the trends established today will carry over into tomorrow as investors rotate out of European fixed income and into the region's equities.
On the economic calendar in the US is the preliminary manufacturing index from Markit for the month of January. The index is expected to remain around 54, which would be its lowest since 2013. The other major report of the day is December existing home sales. Thus far, real estate activity has been strong for the month.
The major market-moving data is scheduled for overnight. The preliminary January China manufacturing PMI will be released tonight. The People's Bank of China (PBoC) said in a commentary on the official China Securities Journal this evening that if the data is weak it may ease liquidity conditions further. Also scheduled for tomorrow is preliminary Eurozone manufacturing and services PMI's.
Honeywell (HON), General Electric (GE), Kansas City Southern (KSU), Kimberly Clark (KMB), McDonald's (MCD), Bank of NY Mellon (BK), and State Street (STT) are scheduled to report earnings tomorrow morning.
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