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Bearish Dax reversal drags on markets heading into nonfarm payrolls

Bearish Dax reversal drags on markets heading into nonfarm payrolls

On Thursday European trading took the spotlight with some major swings around today’s ECB meeting. Expectations that President Draghi would bring in new stimulus were running at fever pitch just before his press conference. The Dax briefly reached a new all-time high above 10,500 then was slammed after it quickly became clear that a decision on more stimulus was going to be punted off to next year. This sent the Dax into a tailspin, busting 10,000 and taking a 200-point hit off its high to finish the day near 9,800.

The ECB Decision

Meanwhile, the ECB decision to wait and see if the interest in its December round of targeted LTRO loans will be any better than the September fiasco ignited a rebound in EUR, which had been depressed going into the meeting on stimulus expectations. The euro traded up over 1% then tailed off later in the day after reports circulated that the ECB is looking at more asset purchases in all kinds of asset classes but not gold or shares depending on the source. Whether this was backpedalling after the negative reaction to the press conference or some European version of the plunge protection team remains to be seen, but all the measures to date have done nothing to turn around the downtrend in the ECB’s balance sheet, and the central bank is losing credibility on the matter.

Global indices

European indices finished the day lower pretty much across the board with the FTSE falling the least, while US indices spent most of the day flat to slightly lower with traders unwilling to push through headwinds ahead of tomorrow’s nonfarm payrolls, particularly after yesterday’s minor ADP disappointment. Heading in to the weekend, it’s a light news day for Asia Pacific and European news, so the stage is now clear for the US employment reports to take the spotlight. A reading of 200K-250K will likely be seen as business as usual. A reading above 250K would suggest more pressure to raise interest rates sooner which could boost USD and sink stock indices, while a reading under 200K could have the opposite effect.
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