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Report on Size, Composition of ECB Asset Purchase Plan Spurs Gains in Risk Assets


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

Volatility continues to reign king in 2015.

The major event today was the news reports from two ECB officials that released the proposed details of the central bank's bond purchase program that may begin tomorrow. The proposal, which was created by the ECB's Executive Board and circulated to the Governing Council, expects purchases of 50 billion Euros of sovereign bonds each month through 2016. The total purchases would number between 600 billion and 1.1 trillion Euros under the suggested plan. Before today, analysts had expected a plan of about 550 billion Euros in purchases of sovereign bonds.

Risk assets globally rallied significantly on the news. Before the report, the S&P 500 (SPX) had opened down as much as 11 points only to shoot straight back up and peak at a gain of 13 points after the first 90 minutes. Gains were moderated as the day progressed. European stocks also shot higher. The German DAX reversed losses of 1%, spurred by cautious comments from ECB Executive Board member Nowotny about the potential for wider ECB asset purchases, to finish up 0.41% for the session. The release also sparked intense volatility in the Euro exchange rate with swings of more than 1% in the minutes following.

In a surprise move by the Bank of Canada (BOC), the central bank cut its policy rate by 25bps to 0.75%. Of the 22 economists polled, none had expected a rate cut. Market-implied probabilities had priced a 40% chance for a rate cut at some point during this year. The Canadian Dollar (CAD) fell more than 2% versus the US dollar after the report and the front end of the Canadian sovereign bond curve rallied more than 40bps. Professional forecasters now see the probability of another rate cut by the BOC, perhaps as soon as March. After the close, the Brazil Central Bank (BCB) raised its policy rate by 50bps to 12.25%, as had been expected.

American Express (AXP) announced at the end of trading that it is planning on cutting thousands of jobs throughout the year.

Tomorrow's Financial Outlook

The event that many investors have been waiting the past three months for has finally arrived. If the news reports today are correct, the ECB will likely embark on a 500 billion Euro sovereign bond purchase program at its meeting tomorrow, either immediately or in the coming months. The Euro has fallen more than 16% in the past seven months versus the US dollar as the ECB has dramatically eased policy. The decision on interest rates will be released at 7:45am ET followed by President Mario Draghi's press conference at 8:30am ET. If any plan is to be announced, it would happen at the press conference.

Weekly jobless claims will be reported tomorrow in addition to the November FHFA home price index and the regional Kansas City manufacturing survey. Overnight, advance eurozone consumer confidence for January will be reported.

Twenty three major US companies are scheduled to report earnings tomorrow. Notables include BB&T (BBT), Keycorp (KEY), Janus Capital (JNS), Verizon (VZ), Capital One Financial (COF), Altera (ALTR), Skyworks (SWKS), Starbucks (SBUX), E-Trade Financial (ETFC), Cypress Semi (CY), Southwest Airlines (LUV), Travelers (TRV), Union Pacific (UNP), United Continental Holdings (UAL).

Twitter: @Minyanville

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