24 November 2014
Ahead this week (High impact only)
# The provision of (and promise of) cheap liquidity continues to rule the financial world, a full 6 years on from the Fed’s initial QE1 experiment. Put another way – bad news is still good news for share markets. And Friday night was once again all about central banks as the ECB reiterated its ‘whatever it takes’ mantra whilst the Chinese surprised with an official interest rate cut. European equities exploded higher on the central bank combination with the pan-European Stoxx600 ending up 2.06% on the day (dwarfed by some of the regionals - Dax +2.62%, French CAC 2.67%, Spain’s IBEX 3.05% and the FT Milan a stunning 3.88%). U.S. moves were somewhat more muted however, the S&P was up 0.75% in the morning before closing the day up 0.52% at a fresh all-time closing high of 2,063.50. The Dow closed up 91.06 points or 0.51% higher at 17,810.06 and the NASDAQ closed up 11.10 points or 0.24% higher at 4,712.97. For the week the Stoxx was up 2.88%, the Dow rose 1.0%, the S&P gained 1.2% and the NASDAQ had a weekly gain of 0.50%.
# Mario Draghi the ECB chief, at a scheduled news conference, said : "If on its current trajectory our policy is not effective enough to achieve this, or further risks to the inflation outlook materialize, we would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases”. As well as buoying equity markets the comments sent the EUR/USD sharply lower with the pair collapsing from 1.2540 to 1.2390. The pair has eased a touch more in early trading this morning to 1.2365. Meanwhile the commodity currency block took off in the opposite direction as the Chinese move was initially seen as ensuring China would achieve its +7% growth targets. However a chunk of the gains were given back by the end of the day, as some analysts questioned why the PBOC acted (just how big are the housing market problems in other words) and whether the action will indeed be enough to stabilize/bolster China growth.
# The details of the Peoples Bank of China easing – the lending rate was cut by 0.40% whilst the deposit rate was cut by only 0.25%. A small note of caution here as this move could cut into Chinese bank lending margins, and with the sector already under some growing pressure from the housing market price falls, could put a bit of a squeeze on. Indeed the move could make Chinese banks somewhat more reluctant to lend.
# Commodities initially benefitted through the offshore session but by the end of the US session some had trouble holding on to earlier gains. WTI Crude soared over 2.60% at one stage before easing back to close around 0.90% higher while Copper was up 1.65% at one stage before closing just 0.25% up on the day. Gold regained the 1,200 handle thanks to the promise of more central bank accommodation closing at 1,202 up 0.64% from Thursday’s close at 1,193.50. Iron Ore dipped below 70.00 closing at 69.80 down from Thursday’s fix at 70.00. It was the first fix below 70 in iron ore since mid-2009. For the week Gold gained 1.18%, Crude rose 0.91%, Copper fell 0.75% and Iron ore fell a whopping 7.55%.