It’s been a big day for trading across indices, commodities and currencies as the implications of today’s two big news developments worked their way through the markets over several stages.
The first phase saw reactions to the markets most immediately impacted by today’s news.
Early in the day, EUR rallied and European stocks slumped as the ECB surprised many traders this morning taking a very neutral stance on monetary policy
, only making minor adjustments to forecasts, while President Draghi indicated that the potential of extending or increasing its current asset purchase program which ends in March 2017 was not even discussed. This sent traders who had speculated on a dovish ECB scrambling to get back on side.
Mid-morning energy commodities and energy stocks exploded to the upside after the US Department of Energy reported a huge 14.5 mmbbl drawdown in US oil stockpiles last week and a 4.0 mmbbl decline in gasoline inventories. This news also sparked a rally in energy stocks.
The second phase saw traders react to the wider implications of today’s news.
USD rallied into the afternoon, US treasury yields rose, US stocks fell and European stocks bounced back as traders recognized today’s news could put a September US interest rate increase back into play. Some people (not me but a number of others) were of the opinion that there is no way the Fed could raise rates when the ECB and Bank of Japan were set to bring in more stimulus as too much of a divergence between major central banks. Today’s ECB decision to go neutral along with increasing evidence that the Bank of England likely overdid it on stimulus this summer means a hawkish Fed is not as far off the beaten path and it could be clear to raise interest rates this month if it wants too.
Meanwhile, strong driving demand for gasoline and the big US oil inventory drop suggest a strong economy giving Fed hawks more ammunition to build a case for going sooner. The rally in USD and the prospects for a more hawkish Fed sent commodities outside of the energy group and really the only reason indices weren’t down more was because of the strong performance of the energy group.
With the recent cycle of monetary easing ending and Bank of Japan now standing alone as the one major central bank still considering more stimulus at this time, JPY has been hit the hardest falling not only against USD but also GBP, EUR and other majors. AUD and NZD started the day strong only to stage significant bearish trading reversals which means they could be active today as well.
We could see some action today around Chinese inflation reports which could influence trading in China-sensitive markets like Asia Pacific stocks and resource currencies. UK construction data could impact trading in GBP while two Fed speakers could spark action in US markets.
Canadian stocks and CAD could be active on this month’s Canada employment figures. The street is expecting a 14K rebound from a 32K drop in July In the wake of the Bank of Canada statement which suggested downside risks to the economy in July, traders may focus on this report for signs of whether the hoped for summer rebound in the Canadian economy has materialized or not. Even with vacations, I think a rebound could be reasonable as some reconstruction projects may not have started so quickly and that a 20K increase is possible.
There have been no major corporate announcements after the US close today.
Significant announcements released overnight include:
US natural gas 36 BCF vs street 42 BCF
US DOE crude oil inventories (14.5 mmbbls) vs street 0.9 mmbbls vs previous 2.2 mmbbls
US DOE gasoline inventories (4.2 mmbbls) vs street (0.75 mmbbls)
ECB main refinance rate 0.00% no change as expected
ECB deposit rate (0.40%) no change as expected
ECB marginal lending facility 0.25% no change as expected
ECB asset purchase (QE) target €80.0B unchanged as expected
Upcoming significant economic announcements include:
(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)
9:50 am AEST China consumer prices street 3.3%
9:50 am AEST China producer prices street 2.9%
7:00 am BST Germany trade balance street €23.7B
9:00 am BST Norway consumer prices street 4.2%
9:30 am BST UK trade balance street (£4.2B)
9:30 am BST UK construction output street (3.4%) vs previous (2.2%)
9:30 am BST UK inflation forecast previous 2.0%
10:00 am BST Greece industrial production previous 7.5%
10:00 am BST Greece consumer prices previous (1.0%)
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%