The end of the recent monetary easing cycle hit markets like a ton of bricks sparking a number of explosive trend changes, with key reversal days, engulfing candles and breakaway moves occurring across a number of major markets around the world.

The action was sparked by widespread disappointment with the ECB’s stimulus moves which were nowhere as strong as had been speculated. A small deposit rate cut is no big deal and the lending rate stayed the same. Extending the program into 2017 doesn’t increase stimulus now and adding regional bonds only helps the ECB to hit the objectives of the current QE program which has been running short since inception. Hints of new measures also failed to materialize.

None of the other major central banks that met this week in Australia, Canada and India added stimulus either suggesting that the recent monetary stimulus cycle has run its course and the normalization process could begin at the FOMC meeting on December 16th.

The reaction from markets to the ECB disappointment was swift and severe. EUR and neighbouring currencies that had been depressed on stimulus speculation roared back to life while the previously high-flying USD crashed back to earth. Stock markets which had advanced in hope of more easy money from the ECB plunged back down with European indices falling a lot more than their US counterparts.

Today’s action represents the start of a transition phase that could play out over the next few weeks but for stocks could be short term pain for long-term gain. In the last decade, when the Fed made a hawkish move at its December meeting US indices fell in the first half of the month but more than made back the losses in the back half. This suggests that if the Fed does raise rates the Santa Claus rally may arrive a bit late this year but if they don’t, the holiday season could be a frosty one for stocks.

Once the liquidity readjustment runs its course, things could be looking up for EUR, gold and stocks in 2016 while USD could drop back. Overlooked in today’s tumult was the fact that the ECB raised its GDP forecasts for 2015 and 2017, and that ECB President Draghi indicated the current QE program is doing its job in helping the economy. This means that things could be looking up for corporate earnings and commodity demand next year. This is the same kind of hawkish positive signalling that Fed Chair Yellen and NY Fed President Dudley have been talking about.

It has also been another wild day for crude oil which gained back all of the previous day’s big losses. Although the USD drop provided some support, the main driver of trading remains speculation about what OPEC may or may not do about its production target at tomorrow’s meeting. One thing that does seem to be clear is that the 39.00 to $40.00 represents enough of a pain threshold that big producers appears to be keen to defend. With all of the rumours and denials floating around the last few days it’s anyone’s guess what the decision will be, but the uncertainty does suggests that oil could have some big swings over the next 24 hours regardless of what transpires.

Tomorrow may bring another round of FOMC speculation with the release of the last nonfarm payrolls report before the December 16th Fed Decision Day. Last month’s 270K was huge and some retrenchment appears likely but the strong ADP report and continued low jobless claims suggest the month was probably pretty good. The street is at 200K and I’m going to guess 220K. I also think it would take a negative number for the Fed to change its mind about interest rates the way members have been signalling the last couple of weeks.

The Canada Labour Force Survey is also due out tomorrow morning which may influence trading in CAD. The street is looking from a 10K drop after a big increase but I think if that was the case we would have seen a more dovish Bank of Canada earlier in the week. With part time seasonal work likely picking up, I think we may get a 10K increase.

Corporate News

Gap November same store sales (8.0%) below street (5.7%)

Economic News

Significant announcements released overnight include:

ECB interest rate 0.30% no change as expected
ECB deposit rate 0.10% cut to (0.30%) as expected

ECB QE Program extends program out to March 2017, expands basket to include regional bonds, no increase to monthly purchase target, no corporate bond buying, no radically new measures

ECB GDP forecasts 2015 raised to 1.5% from 1.4%
2016 steady at 1.7%
2017 raised to 1.9% from 1.8%

Eurozone retail sales 2.5% vs street 2.7%

US jobless claims 269K vs street 268K
US factory orders 1.5% vs street 1.4%
US natural gas storage (53 BCF) vs street (48 BCF)

Service PMI Reports:

US Markit service PMI 56.1 vs previous 55.0
US ISM non-manufacturing 55.9 vs street 58.0

Spain 56.7 vs street 56.6
Italy 63.6 vs previous 60.1
France 51.3 vs street 51.0
Germany 55.6 as expected
UK 55.9 vs street 55.0

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)

11:00 am AEDT NZ ANZ commodity prices previous 6.9%
11:30 am AEDT Australia retail sales street 0.4%

12:30 pm AEDT Japan labour cash earnings street 0.5%
4:00 pm AEDT Japan consumer confidence street 41.7

7:00 am GMT Germany factory orders street (2.5%)
7:30 am GMT Germany Bundesbank forecasts
8:00 am GMT Spain industrial output street 4.1%
8:30 am GMT Sweden industrial production street 4.3%

8:30 am EST Canada trade balance street ($1.7B)
8:30 am EST US trade balance street ($40.5B)

8:30 am EST US nonfarm payrolls street 200K
8:30 am EST US nonfarm payrolls revision previous 271K
8:30 am EST US 2-month payrolls net revisions previous 12K
8:30 am EST US private payrolls street 190K
8:30 am EST US private payrolls revision previous 268K
8:30 am EST US unemployment rate street 5.0%
8:30 am EST US participation rate street 62.4%
8:30 am EST US average hourly earnings street 2.3%

8:30 am EST Canada employment change street (10K) vs previous 44K
8:30 am EST Canada full-time jobs previous 9K
8:30 am EST Canada part-time jobs previous 35K
8:30 am EST Canada employment rate street 7.0%

10:00 am EST Canada Ivey PMI street 53.0

4:00 am EST OPEC meetings start
10:00 am EST OPEC post meeting press conference
1:00 pm EST US Baker Hughes Drill rig count previous 744

10:00 am EST FOMC Harker speaking
11:45 am EST ECB Draghi speaking
4:00 pm EST FOMC Kocherlakota speaking
4:10 pm EST FOMC Bullard speaking