The ECB shocked the markets this morning, hitting the panic button by announcing a series of surprise interest rate cuts and indicating that its own QE program is set to begin in October just as the Fed wraps up QE3.
This news has sent EUR and the pegged CHF and DKK sharply lower against other major currencies, particularly the resource dollars (CAD, AUD and NZD) and USD. CAD has rallied to the top of the table on the back of a better than expected trade surplus. Recall that yesterday, the Bank of Canada mentioned improving exports and housing when backing away from dovish talk.
European indices are trading higher on the news, but gains have been modest so far relative to the news with the Dax up 0.7% and the FTSE
struggling with 6,900 resistance. Gains have been stronger in Southern Europe with the MIB up 1.9% and the IBEX up 1.6%. This suggests some action from the ECB was expected, although perhaps not all at once.
US indices are looking toward a higher open today but remain short of the highs set yesterday. ADP payrolls and jobless claims were good but not explosive so the impact on the Fed is neutral with pressure to remove stimulus faster neither increasing nor decreasing. A number of FOMC members are speaking later in the day which could give more colour on what the hawks and doves are thinking heading into tomorrow’s nonfarm payrolls report. Gold continues to stabilize against USD following recent declines
Crude oil continues to get kicked around today falling back after a rally yesterday. Energy commodities could be active later this morning with both crude oil inventories and natural gas storage being reported today.
Economic reports released overnight and this morning include:
ECB interest rate and QE benchmark lending rate cut to 0.05% from 0.20%
Marginal lending rate cut to 0.30% from 0.40%
Deposit rate cut to (0.20%) from (0.10%)
ABS purchases (QE) to start in October details to come at Oct 2 meeting
UK interest rate and QE 0.50% and £375B no change expected
Sweden interest rate 0.25% no change expected
Japan interest rate and QE no changes expected
US ADP payrolls 204K vs street 220K, previous revised down to 212K from 218K
US jobless claims 302K vs street 300K
US trade balance ($40.5B) vs street ($42.4B)
Canada trade balance $2.6B vs street $1.1B
Germany factory orders 4.9% vs street 1.1%
France Q2 unemployment rate 10.2% as expected
France Q2 unemployment chng 10K vs previous 23K
NZ house prices 6.9% vs previous 7.6%
Australia trade balance ($1.3B) vs street ($1.75B)
Australia retail sales 0.4% as expected
Economic reports due later today include:
9:45 am EDT US Markit service PMI street 58.5
10:00 am EDT US ISM non-manu PMI street 57.6
10:30 am EDT US natural gas street 74 BCF
11:00 am EDT US crude oil inventories street (1.0 mmbbls)
FOMC members Mester, Powell, Fisher and Kocherlakota speaking later in the day.