It was a volatile session on the markets in the wake of the European Central Bank (ECB) meeting.

Europe

The refinancing rate was held steady at 0.0%, meeting forecasts, the deposit rate was lowered to -0.5%, and a quantitative easing (QE) scheme of €20 billion per month will commence on 1 November. The stimulus package will run as long as it is needed. The ECB trimmed its growth forecast for 2019 and 2020, and the inflation guidance was lowered for 2019, 2020, and 2021, and in light of these projections it’s no wonder, the central bank loosened monetary policy. The currency area is muddling along, and today’s move is aimed at trying to steer the bloc in the right direction. Mario Draghi, the head of the ECB, called for fiscal stimulus from governments again, and it is clear he feels that monetary policy can’t solve the eurozone’s problems alone. Today deposit rate cut and QE scheme weren’t huge, and the ECB is becoming slightly squeezed for options, and hence the renewed calls for fiscal stimulus. The major European equity markets are mixed heading into the close. Equities rebounded from the post-ECB decline, but a drop in oil socks is chipping away at recent gains. 

Morrisons had a respectable first-half as pre-tax profit stripping out one-off items increased by 5.3% to £198 million, exceeding forecasts. The company diversified into the wholesale industry in recent years, and today it said it expects to achieve £1 billion in annualised wholesale supply sales. The group cautioned about the consumer climate on account of Brexit, but it also revealed a special dividend of 2p, so it clearly is that that worried. The stock is higher on the day.

N Brown sold-off today after the company confirmed it will have to set aside between £20 million and £30 million for provisions in relation the mis-selling of payment protection insurance (PPI). The cut-off point to claim compensation for PPI was last month, and N Brown saw a spike in claims. The company joined the ranks of Lloyds, RBS and Barclays who declared extra PPI provisions recently.   

US

The Dow Jones and the S&P 500 were higher on the back of the news that Trump was considering brokering an interim deal with China to delay tariffs. But it was then reported that he is ‘absolutely not’ considering such a move, and that caused stocks to hand back some of the previous gains. 

The US economy continues to be in decent shape. The jobless claims reading dipped to 204,000, from 217,000 and economists were expecting 215,000. When you factor in the very low unemployment rate, it is clear the jobs market is robust. Headline CPI cooled to 1.7%, but the core reading ticked up to 2.4% from 2.2%, and this highlights a clear increase in underlying demand, which begs the question, why would the Fed cut rates next week.

FX

It was a choppy day on the currency markets due to the ECB meeting. Not long after Mr Draghi lowered the GDP and CPI forecasts, EUR/USD dropped below 1.1000, and EUR/GBP dipped below 0.8900. The selling pressure on the euro didn’t last long, and the losses were reversed. The solid US core CPI reading and the jobless claims data helped the US dollar index hit its highest level in over one week, but the move was short lived.          

Commodities

Gold is back above the $1,500 mark thanks in part to the softer greenback. Lately there has been an inverse relationship between the greenback and the metal, and the dip in the dollar helped gold. It is worth remembering that gold rebounded yesterday after a four days of loses, and if it holds above the $1,500 mark, the wider bullish move should continue.      

Oil is lower today after the OPEC+ meeting didn’t bring about additional cuts. The energy lost ground yesterday after it was reported that President Trump discussed the possibility of easing sanctions on Iran, and today’s news added to be bearish move in the oil market.   

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