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ECB Opens the Door for Imminent Expansion of Asset Purchases; Jobs Day Tomorrow


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

This morning the ECB signaled that they were preparing to purchase larger and different amounts of assets to help expand its balance sheet. President Mario Draghi stated at his press conference that the ECB expects to continue its purchases of covered bonds and asset-backed securities for at least two years. Additionally, he stated that the ECB is seeking to expand its balance sheet by at least a trillion Euros to put it at a similar level that it was in 2012 and that the central bank's staff was making preparations that would allow it to purchase other assets such as sovereign and corporate bonds, and equities. Presumably both of those indicate the ECB is prepared to expand its easing measures in the near future.

Markets responded favorably to this news for the most part. European equities were higher at the onset, but some finished lower on the day. The Italian FTSEMIB index, which is the de facto gauge of the ECB's easiness, closed down 0.73%. Conversely, the German DAX was up 0.66%.

S&P 500 (SPX) futures were down five points in the pre-market before the ECB decision. After Draghi's press conference they shot up into positive territory and remained there for much of the day. In the early morning, the SPX fell as much as 0.38% before recovering to finish positive. This coincided with weakness in European equities and spurious reports that the Ukrainian government had begun a new military offensive in the eastern part of the country. Energy and industrial stocks were the best performing sectors in today's session. Utilities fell the most as interest rates rose. The 10-year yield rose by five basis points to 2.39%.

Weekly jobless claims fell to 278K, the second lowest of the year. This compares to economist expectations of 285K. This level of average jobless claims has historically been consistent with nonfarm payroll gains of 300K, according to Deutsche Bank Economist Joe LaVorgna.

Natural gas futures exploded today and posted a 5.60% gain today. They are now up 21.72% over the past eight trading days. The jump was wholly due to the government's Global Forecast System that showed very cold weather next week. Temperatures are expected to reach at or below freezing temperatures in the northeastern portion of the US, roughly 10 degrees below normal.

Tomorrow's Financial Outlook

The key event tomorrow will be the October nonfarm government payrolls report. Economists expect net growth of 235K jobs in the month, and that estimate has steadily risen over the past month. Market participants' expectations have crept up as well with most looking for a very large number. Additionally, wage growth is expected to pick up. The implication being that the Fed would need to rethink its policy of keeping rates at very low levels through most of the next year. The September consumer credit report is due in the afternoon as well, but the main focus for the day will be the jobs report.

Overnight there is only a sparse amount of economic data scheduled to be released. The Swiss employment report, German and UK trade balances, and German industrial production will be reported in the morning. Canada's payrolls report will be reported at the same time as the US'.

The only major earnings report scheduled for tomorrow is from Humana (HUM).

Twitter: @Minyanville

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