Neutral ECB, higher USD drag on stocks and oil + Canada jobs preview
19:00, 08 September 2016
· By CMC Markets
Stock markets around the world have been trading flat to lower as traders continue to react to the ECB taking a less dovish stance on monetary stimulus. The FTSE is down 0.25% while the Dax is down 0.4%. US index futures are down 0.2%.
USD is holding on to yesterday's gains weighing on currencies and commodities. Even Crude oil which had soared yesterday on a massive 14.5 mmbbl drop in US DOE inventories succumbed to global market headwinds overnight.
Oil contracts have been falling back to Earth a bit with Brent and WTI both down 1.4% although both remain well above the levels they were at earlier in the week. This trading correction could drag on energy stocks today and perhaps indices as well as energy sector gains had beeen the only thing stopping indices from falling further yesterday.
The ECB's current QE program is scheduled to end six months from now, and the street had been looking for the ECB to return from the summer with ideas on what to do next. Not only did the central bank not increase stimulus but President Draghi indicated there was no discussion on what to do next.
The street has taken Thursday's developments to mean that the limits of monetary policy have been reached, that the current monetary easing cycle is near an end and that future stimulus if any may need to come from elsewhere. Bond yields have been rising since the meeting particularly in Europe and North America.
The ECB decision also has given the Fed more options for its own upcoming meeting. There had been a feeling among some market players that a dovish ECB meeting would make it more difficult for the Fed to go hawkish and raise rates as the divergence between the two big banks would be too great. A shift to neutral by the ECB opens the dor for the Fed to act on rates this month or fall, boosting USD and dragging on stocks.
JPY is also under pressure with Japan now the most dovish of the major central banks and the only one currently considering more stimulus. The Bank of England was the last to add stimulus but today's shrinking UK trade deficit coupled with a lower German trade surplus indicates the lower Pound has been doing its job to help the economy and that Governor Carney may have overdone it.
CAD could be active today around Canadian employment figures. The Bank of Canada having indicated earlier in the week that July may have been softer than expected. Because of this, the street may look to this report for an indication of whether the summer rebound the Bank has been counting on materialized up in August or not. I suspect that some to the factors for a rebound like the start to reconstruction in Fort McMurray may have taken longer to get going then expected as is normal. The street is expecting a 14K increase in jobs in August after a 31K drop in July. I'm thinking a 20K increase.
Late breaking news: Canada jobs increased by 26K in July beating the street.
There have been no major corporate announcements so far this morning.
China consumer prices 1.3% vs street 1.7%
China producer prices (0.8%) vs street (0.9%)
Germany trade balance €19.5B vs street €23.7B
Germany exports/month (2.6%) vs street 0.4%
Norway consumer prices 4.0% vs street 4.2%
Norway producer prices (4.7%) vs previous (7.2%)
UK trade balance (£4.5B) vs street (£4.2B)
UK construction output (1.5%) vs street (3.4%) vs previous (2.2%)
UK inflation forecast 2.2% vs previous 2.0%
Greece industrial production 4.1% vs previous 7.5%
Greece consumer prices (0.9%) vs previous (1.0%)
Upcoming significant economic announcements include:
8:15 am EDT FOMC Rosengren speaking
9:30 am EDT FOMC Kaplan speaking
8:30 am EDT Canada employment change street 14K vs previous (32K)
8:30 am EDT Canada full-time jobs previous (71K)
8:30 am EDT Canada part-time jobs previous 40K
8:30 am EDT Canada unemployment rate street 7.0%