Draghi’s shock and awe slams Euro below 1.30, targets lowered.

September 5, 2014

Last night’s predictable – essentially telegraphed – move by ECB President Mario Draghi which knocked 2 big figures off the Euro shows exactly the point I have been making about black swans being able to hide in plain sight.

Readers know I can’t fathom why Euro was sitting above 1.30 so at just below 1.30, 1.2939 this morning, it’s still got plenty of room to fall.

200 points to the 2013 low and then another 7 big figures to the 2012 low – if Draghi is channelling his inner Kuroda and the US economy is on the mend this level is not out of the question.

Thankfully I didn’t get lured into a long pre-ECB but I wasn’t short either so I’ll chalk that one up as a loser given I have been bearish for so long.

When you think about Draghi and the fractious Bank he leads you have to “dip your lid” a little – maybe only a little – because when you are a central banker with only one bullet left its best to use it wisely and to greatest effect. So the surprise rate cut to 0.05% to go with the announced quantitative easing where the ECB will buy covered bonds and other asset backed securities to pump cash into the European economy. At present the volume is not specified.

Equally European stocks liked what they saw with the CAC rising 1.65% to 4,495, the DAX up 1.01% to 9,724 (through resistance) while stocks in Milan and Madrid were 2.82% and 1.96% higher. The FTSE was largely unchanged up 0.06% to 6,878.

Back to the highs? The Nikkei loved QE so why not the DAX?

US Stocks were less excited however finishing slightly in the red as markets await non-farm payrolls tonight. The Dow was off just 0.05% at 17,070, the Nasdaq dipped 0.23% to 4,562 while the S&P 200 continues to stall here around 2000 finishing off 0.14% at 1998.

S&P price action is really interesting – not sure what it means yet but close to going short.

Data in the US was mixed with a solid ISM non-manufacturing PMI for August (59.6 from 58.9 in July) but jobless claims rose a little to 302,000 and the ADP private payrolls report was a little weaker than expected up 204,000 against 220,000 expected.

The impact on the local market has been small with the SPI 200 futures off just 2 points to 5631 after a weaker day on the physical ASX yesterday. Iron ore was lower again overnight which might weigh today.

In Asia yesterday the Nikkei lost 0.33% to 15,676 even though the BoJ continues with its super accommodating monetary policy. The Hang Seng dipped 0.08% to 25, 298 but the Shanghai exchange rose 0.8% and is now back above 2,300 closing yesterday at 2,307 – A very solid recovery over the past week.

On currency markets it was a night of US dollar strength with the Euro tanking as noted above. Sterling is also sharply lower at 1.6318 and USDJPY is up at 105.29. The Aussie however remains strong and even though it is off its highs of 0.9392 at 0.9345 the performance is very solid.On the crosses the Aussie has made solid gains as well.

On commodity markets there was more bad news for iron ore with September futures down 56 cents a tonne to $84.71 while December futures fell $1.66 to $83.37. September Newcastle cola fll 50 cents to $66.55 a tonne while December futures fell 80 cents to $68.15.

Nymex crude fell $1.04 to $94.50, gold dipped back to $1,62, silver has slipped under $19 an ounce while copper is at $3.14 a pound. On the Ags corn fell 1.61%, wheat rose 0.33% and soybeans fell 1.53%.

Data-wise its all about the US non-farm payrolls tonight at 10.30 with the market expecting a rise of 225,000. EU GDP is out prior but that is a little historic now after the ECB action but German IP will be watched closely.

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