It has been another big day for trading with the Dow, S&P 500 and Russell 2000 all breaking out to new all-time highs while the DAX broke out and posted a 2% gain and the FTSE
also staged a strong advance.
Anticipation that some kind of bailout arrangement may be coming for Italian banks despite the country’s political turmoil on top of positive sentiment toward the US economy helped power the surge for stocks. A deepening correction in the US dollar also helped to take the pressure off a number of markets including the Euro, gold and stocks. Although another decline in US oil inventories didn’t help the oil price as it remains in correction mode, it did indicate robust market and economic conditions.
The Canadian Dollar rallied following the Bank of Canada decision to hold its overnight rate at 0.50% and neutral statement. The central bank indicated that Q4 is not expected to be quite as strong as the big Q3 bounce but it is still expected to grow and other comments were balanced indicating that Canadian rates are likely to remain on hold for some time even if the Fed raises interest rates next week.
Central bank speculation now turns to Europe and tomorrow’s ECB meeting which could have some big news about the ECB’s current QE program which is scheduled to end in March 2017. The central bank has several options including:
Do nothing and let the program end as scheduled
Extend the program but reduce the pace of purchases (tapering)
Extend the program and maintain the current level of purchases
Extend the program and increase the pace of purchases
The first two would be seen as a hawkish shift and could support further gains in the Euro. The third option extend the status quo would likely not have much of an impact. The last option would likely be seen as a dovish turn and could send EUR back downward.
I think the tapering option is most likely. A cold turkey end to the program could upset the continental economy at a politically volatile time just ahead of spring elections in France. Extending the program through 2017 to get past the German election is also a strong possibility.
Any comments from the central bank related to the health of the European economy and the banking system may also have an influence on Euro trading. The ECB decision is due on Thursday at 7:45 am EST (12:30 pm GMT), followed by the press conference with ECB President Draghi at 8:30 am EST (1:30 pm GMT)
Today has the potential to be an active one for Asia Pacific trading. Japan GDP and Australia trade data may attract some attention but the main event is likely to be the China trade report which could have an impact on China sensitive markets including commodities like copper and oil, currencies like AUD and NZD plus domestic and resource stocks. The rebound in gold could help precious metal miners initially while energy producers and base metal miners could struggle early on with their prices sliding.
There have been no major announcements after the US close today.
Significant announcements released overnight include:
Canada interest rate 0.50% no change as expected
US DOE crude oil inventories (2.3 mmbbls) vs street (1.5 mmbbls)
UK Halifax house prices 6.0% as expected
UK industrial production street 0.5%
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)
10:50 am AEDT Japan GDP street 2.3%
11:30 am AEDT Australia trade balance street ($610M)
TBA China trade balance street $46.9B
TBA China exports street (5.0%) vs previous (7.3%)
TBA China imports street (1.9%)
8:30 am GMT Sweden household consumptn previous 1.5%
10:00 am GMT Greece unemployment rate previous 23.4%
12:45 pm GMT ECB meeting decision on what to do about QE program
ending in March expected
1:30 pm GMT ECB Draghi press conference
8:30 am EST Canada Morneau and Poloz announce new bank note
8:30 am EST Canada new house prices previous 2.8%
8:30 am EST Canada building permits street 2.0% vs previous (7.0%)
8:30 am EST US jobless claims street 255K
10:30 am EST US natural gas storage street (45 BCF)