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ECB Cuts Rates, Dollar Rallies and Worries Investors
Today's financial recap and tomorrow's financial outlook.
Minyanville Staff    

The main event today was the ECB rate decision and it did not disappoint in producing fireworks. The ECB cut all of its three interest rates by 10bps, lowering its benchmark rate to 0.05% and its deposit rate to -0.20%. In his press conference, ECB President Mario Draghi said that this effectively brought the central bank to its "lower bound" meaning that it cannot lower its benchmark rate below zero. Although a fair number of economists expected this cut, the majority did not.

At the press conference, Draghi announced that the ECB would begin its ABS and covered bond purchase programs after its October meeting. He also opened the door for full Fed-style quantitative easing through the outright purchase of public (sovereign) or private (corporate) bonds. Presumably, because today's decision was not unanimous, it would require the convincing of certain Governing Council members. Draghi also pushed for fiscal authorities to step up structural reform efforts.

One notable market reaction was a significant selloff in the Euro. The EURUSD currency pair fell as much as 1.75%, or three and a half standard deviations. The US dollar index rose more than 1% and posted strong gains as it posted very strong gains against the Canadian dollar and British pound. Initially, the German sovereign curve steepened, due to a further reiteration that rates would stay low for the next five years, but longer-duration notes fell in sympathy to the weakness in US interest rates. The 10-year Treasury yield rose 5.5bps to 2.45%.

The ADP private payrolls report for August showed a net gain of 204K, worse than the expected 220K. Jobless claims remained near their average since April at 302K. The final economic report of the day, ISM services, saw its index rise to 59.6, the highest since August 2005, and ahead of the 57.7 expected.

US equity markets rallied early this morning following a report that stated the ECB would move ahead with its ABS purchase program at today's meeting. The S&P 500 (SPX) rose as much as 0.6% during the session. However, a few headlines discussing Russian tanks crossing the border into Ukraine and the persistently higher interest rates caused equities to sell off as much as 20 points. The SPX ended up completing a technical outside down bar, typically signaling the end of a trend. Energy stocks were very weak today - the worst performing sector - due to the strength in the dollar.

Tomorrow's Financial Outlook

The August nonfarm payrolls report is scheduled to be released tomorrow morning before the equity market opens. Economists are expecting a net gain of 230K jobs during the month. Should there be a payrolls gain of that magnitude, interest rates in the US will likely rise substantially as it will cause the Fed to prepare for an earlier normalization process. Equities will likely fall in this scenario. However, the ADP private payrolls report tends to have a high level of accuracy predicting the government release, which indicates we may see a miss from the consensus. The unemployment rate is expected to drop to 6.1% from 6.2% in the month prior.

The main report overnight will be the preliminary second quarter GDP report from the eurozone. Growth is expected to remain unchanged from the prior quarter and up 0.7% from a year ago. Up to this point, growth has disappointed for Italy, France, and Germany, which has caused estimates to be lowered for the broader area. The advance report showed no growth from the prior quarter.

There are no major earnings reports scheduled for tomorrow.

Twitter: @Minyanville

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
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No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

ECB Cuts Rates, Dollar Rallies and Worries Investors
Today's financial recap and tomorrow's financial outlook.
Minyanville Staff    

The main event today was the ECB rate decision and it did not disappoint in producing fireworks. The ECB cut all of its three interest rates by 10bps, lowering its benchmark rate to 0.05% and its deposit rate to -0.20%. In his press conference, ECB President Mario Draghi said that this effectively brought the central bank to its "lower bound" meaning that it cannot lower its benchmark rate below zero. Although a fair number of economists expected this cut, the majority did not.

At the press conference, Draghi announced that the ECB would begin its ABS and covered bond purchase programs after its October meeting. He also opened the door for full Fed-style quantitative easing through the outright purchase of public (sovereign) or private (corporate) bonds. Presumably, because today's decision was not unanimous, it would require the convincing of certain Governing Council members. Draghi also pushed for fiscal authorities to step up structural reform efforts.

One notable market reaction was a significant selloff in the Euro. The EURUSD currency pair fell as much as 1.75%, or three and a half standard deviations. The US dollar index rose more than 1% and posted strong gains as it posted very strong gains against the Canadian dollar and British pound. Initially, the German sovereign curve steepened, due to a further reiteration that rates would stay low for the next five years, but longer-duration notes fell in sympathy to the weakness in US interest rates. The 10-year Treasury yield rose 5.5bps to 2.45%.

The ADP private payrolls report for August showed a net gain of 204K, worse than the expected 220K. Jobless claims remained near their average since April at 302K. The final economic report of the day, ISM services, saw its index rise to 59.6, the highest since August 2005, and ahead of the 57.7 expected.

US equity markets rallied early this morning following a report that stated the ECB would move ahead with its ABS purchase program at today's meeting. The S&P 500 (SPX) rose as much as 0.6% during the session. However, a few headlines discussing Russian tanks crossing the border into Ukraine and the persistently higher interest rates caused equities to sell off as much as 20 points. The SPX ended up completing a technical outside down bar, typically signaling the end of a trend. Energy stocks were very weak today - the worst performing sector - due to the strength in the dollar.

Tomorrow's Financial Outlook

The August nonfarm payrolls report is scheduled to be released tomorrow morning before the equity market opens. Economists are expecting a net gain of 230K jobs during the month. Should there be a payrolls gain of that magnitude, interest rates in the US will likely rise substantially as it will cause the Fed to prepare for an earlier normalization process. Equities will likely fall in this scenario. However, the ADP private payrolls report tends to have a high level of accuracy predicting the government release, which indicates we may see a miss from the consensus. The unemployment rate is expected to drop to 6.1% from 6.2% in the month prior.

The main report overnight will be the preliminary second quarter GDP report from the eurozone. Growth is expected to remain unchanged from the prior quarter and up 0.7% from a year ago. Up to this point, growth has disappointed for Italy, France, and Germany, which has caused estimates to be lowered for the broader area. The advance report showed no growth from the prior quarter.

There are no major earnings reports scheduled for tomorrow.

Twitter: @Minyanville

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

More From Minyanville Staff
Daily Recap
ECB Cuts Rates, Dollar Rallies and Worries Investors
Today's financial recap and tomorrow's financial outlook.
Minyanville Staff    

The main event today was the ECB rate decision and it did not disappoint in producing fireworks. The ECB cut all of its three interest rates by 10bps, lowering its benchmark rate to 0.05% and its deposit rate to -0.20%. In his press conference, ECB President Mario Draghi said that this effectively brought the central bank to its "lower bound" meaning that it cannot lower its benchmark rate below zero. Although a fair number of economists expected this cut, the majority did not.

At the press conference, Draghi announced that the ECB would begin its ABS and covered bond purchase programs after its October meeting. He also opened the door for full Fed-style quantitative easing through the outright purchase of public (sovereign) or private (corporate) bonds. Presumably, because today's decision was not unanimous, it would require the convincing of certain Governing Council members. Draghi also pushed for fiscal authorities to step up structural reform efforts.

One notable market reaction was a significant selloff in the Euro. The EURUSD currency pair fell as much as 1.75%, or three and a half standard deviations. The US dollar index rose more than 1% and posted strong gains as it posted very strong gains against the Canadian dollar and British pound. Initially, the German sovereign curve steepened, due to a further reiteration that rates would stay low for the next five years, but longer-duration notes fell in sympathy to the weakness in US interest rates. The 10-year Treasury yield rose 5.5bps to 2.45%.

The ADP private payrolls report for August showed a net gain of 204K, worse than the expected 220K. Jobless claims remained near their average since April at 302K. The final economic report of the day, ISM services, saw its index rise to 59.6, the highest since August 2005, and ahead of the 57.7 expected.

US equity markets rallied early this morning following a report that stated the ECB would move ahead with its ABS purchase program at today's meeting. The S&P 500 (SPX) rose as much as 0.6% during the session. However, a few headlines discussing Russian tanks crossing the border into Ukraine and the persistently higher interest rates caused equities to sell off as much as 20 points. The SPX ended up completing a technical outside down bar, typically signaling the end of a trend. Energy stocks were very weak today - the worst performing sector - due to the strength in the dollar.

Tomorrow's Financial Outlook

The August nonfarm payrolls report is scheduled to be released tomorrow morning before the equity market opens. Economists are expecting a net gain of 230K jobs during the month. Should there be a payrolls gain of that magnitude, interest rates in the US will likely rise substantially as it will cause the Fed to prepare for an earlier normalization process. Equities will likely fall in this scenario. However, the ADP private payrolls report tends to have a high level of accuracy predicting the government release, which indicates we may see a miss from the consensus. The unemployment rate is expected to drop to 6.1% from 6.2% in the month prior.

The main report overnight will be the preliminary second quarter GDP report from the eurozone. Growth is expected to remain unchanged from the prior quarter and up 0.7% from a year ago. Up to this point, growth has disappointed for Italy, France, and Germany, which has caused estimates to be lowered for the broader area. The advance report showed no growth from the prior quarter.

There are no major earnings reports scheduled for tomorrow.

Twitter: @Minyanville

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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