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ECB Cancels Waiver Allowing for Greek Government Debt Usage as Collateral

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

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Global risk assets opened up generally positive today following news that China's central bank cut its reserve requirement ratio after the close of trading there. The People's Bank of China (PBoC) lowered the reserve requirement ratio by 50bps to 19.5%, which effectively injected 600 billion Yuan into the financial system. Chinese A-share equities were up about 5% in post-market trading.

The ADP private payrolls report for January was slightly below expectations at a net gain of 213K jobs versus 223K estimated. However, the last month's report was revised up to 253K from 241K. The report was generally received as positive by market participants because expectations were already low that oil-related layoffs would slow the pace of job gains.

The major event for the day came towards the end of the session. The ECB announced in a statement that it was removing the waiver for Greek debt's use as collateral for monetary policy operations (i.e. funding). This is very important because Greek banks have been using this type of collateral to obtain emergency funding that has essentially kept them in business. Now, this move could push them to the edge of solvency. The Greece ETF (GREK) fell by 9% following the announcement as European markets were closed at the time of this announcement. S&P 500 (SPX) futures fell 25 points in a straight line in the span of 30 minutes, including post-market trading.

Crude oil's decline was the other significant event for the day. Prices fell last night after the 25% rally over the preceding four days, partly due to a poor API supply report. Investors believed that the very sizable increases in crude inventories could not continue this week, which would be positive for the barrel. However, inventories grew by 6.3 million barrels even though refinery utilization increased by 2%, and crude oil has now fallen by 10% from yesterday's high. Volatility is elevated, to say the least. Separately, the US dollar reversed half of its losses yesterday.

Shares of Disney (DIS) hit an all-time high of $101.94 today after the company reported significantly better-than-expected fourth-quarter earnings. The stock finished at $101.28, up 7.6% on the day.

Biotech giant Gilead (GILD) fell 8.2% to $98.43. While it delivered a stellar earnings report and announced a new $15 billion stock buyback program over the next five years, the company said it would begin discounting the price of its hepatitis C drug Sovaldi, which has been a major earnings driver.

The Gilead news put a dark cloud over the biotech sector, which dropped 1.7%.

Tomorrow's Financial Outlook

The main thing that investors will try to determine overnight is how serious the threat from the ECB is to the solvency of Greek banks, and by extension the potential for Greece to be inadvertently pushed out of the Eurozone. The odds of such an event happening in general is low, but those just reappeared on the radar screen. Outside of that, market participants will be getting prepared for Friday's government payrolls report.

In the US, weekly jobless claims will be reported with this week's expected to snap back to 290K from 265K in the prior. Also scheduled to be reported is December's trade balance, which is expected to contract to -$38 billion from -$39 billion in the month prior, largely due to the decline in the nominal level of oil imports.

Overseas, the major event scheduled for tomorrow is the Bank of England rate decision at noon local time. Additionally, German factory orders and Australian retail sales will also be reported.

Cigna (CIG), Cummins (CMI), Dunkin Brands (DNKN), Sirius XM (SIRI), Sprint (S), Activision Blizzard (ATVI), Lions Gate Entertainment (LGF), CME Group (CME), Buffalo Wild Wings (BWLD), LinkedIn (LNKD), Expedia (EXPE), Twitter (TWTR), Pandora (P), and Yelp (YELP) are among the companies scheduled to report earnings tomorrow.

Twitter: @Minyanville

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