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T3's Take 3: Super Mario Runs Out of Magic Mushrooms


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

ECB (Not So) Stimulus

This morning the European Central Bank cut its deposit rate to -0.3% while leaving its benchmark rate unchanged at 0.05%.

Many market observers had been expecting a deeper cut, and immediately, European equities and bonds began selling off while the euro started rallying.

Market deteriorated further at ECB President Mario Draghi's press conference.

At the press conference, Draghi announced that the ECB's QE program has been extended to March 2017, and that it has been broadened to include regional debt from Eurozone members

However, traders were disappointed that the size of the QE program was not expanded.

In recent weeks, ECB officials have been teasing a major stimulus announcement, which has been boosting European equities and suppressing yields.

Today, those conditions unwound as the Euro Stoxx 50 closed down a whopping 3.61%.

European bond yields skyrocketed, with 10-year German Bund up 19.7 bps at 0.666%, and the French 10-year up 20.8 bps at 0.993%.

The euro rose over 3% against the US dollar today.

Market Roundup

US markets' took their lead from Europe and sold off heavily.

The weakest link in the chain was the NASDAQ which fell 1.7% due to weakness in big-cap tech and biotechnology shares.

The NASDAQ Biotechnology Index ETF (IBB) led the loser's column with a 3.6% drop.

The huge push higher in the euro helped push up commodities prices.

Energy stocks were down big despite a spike in crude oil above $41.

Mining stocks did better, however, as gold and silver prices rose rallied.

The 10-year US Treasury Yield skyrocketed 14.6 bps to 2.326%. Presumably, a less stimulative ECB means a stronger euro. And in turn, the weaker dollar helps open the door for a December rate hike.

Interestingly enough, financial stocks were very weak today, even though they would benefit from higher interest rates through expanding net interest margins.

Fear Is Here

The fear quotient ratcheted sharply higher today as the VIX rose nearly 20% on the day, breaking 19 for the first time since November 18.

Additionally, the VIX futures curve inverted as the spot VIX price exceeded near-term VIX futures prices.

This is a sign that traders are anticipating major volatility in the near-term, which is perhaps no surprise given the ECB's shocker today, anticipation of the November NPF report tomorrow, and the Fed's policy rate decision on December 16.

Friday's Financial Outlook

Finishing out what has been a busy week of economic news, we have the Non-Farm Employment report out at 8:30 a.m. ET tomorrow. This is what many traders have been waiting all week for but with the selloff today, things will be that much more interesting.

Canada's Employment Change, Trade Balance, and Employment Rate will all be released.

Tomorrow, before the bell, Big Lots (BIG) and Hovnanian (HOV) report earnings.
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