ECB hits Euro but the bulls didn’t miss the opportunity to buy

What an appalling trade idea my 4 hour long on the ASX was yesterday – wrong from the get go which was good because I never got to execute.

But what the move highlights – if anything at all – is the difference in the price action of an economy that is doing okay, has relatively high interest rates (meaning money has a cost, and inflation that means the central bank needs to remain vigilant.

Contrast this with the moves we are seeing in the US as the S&P 500 makes new highs every other day and in Germany where a weak moribund economy with disinflation is no match to the power of free money and the promise of ECB quantitative easing.

Indeed a new era has begun at the ECB which announced negative deposit rates last night and set up the infrastructure to conduct its own version of quantitative easing later this year if it deems it necessary. The Refi rate is now 0.15% and the deposit rate -0.1% for balance in excess of reserve requirement.

This is an important in the context of the Australian performance relative to the rest of the worlds bourses because it signals to stock market traders that even though the Fed is tapering its own balance sheet purchases that there is a fresh pool of cash likely to be made available each month at a price so close to being free that the risk reward favours goosing stocks higher.

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And so it was overnight with the DAX in Germany making a new all-time high of 10,014 before closing at 9,948 up 0.21%. The CAC rose 1.07% to 4,549 but the FTSE fell 0.08% to 6,813. In Milan and Madrid stocks were sharply higher to 1.52% and 1.12% respectively.

In the US stocks traders didn’t miss the import of another player at the table handing out cash driving the S&P to another new all-time high and a big close of 1,940 up 0.63%. The Nasdaq rose 1.04% and the Dow was 98 points or 0.59% higher at 16,836.

Locally this has helped the ASCX June SPI 200 contract rise 10 points to 5,451 bid. The Aussie market is still lagging badly and iron ore for September futures rejection of the downtrend line last night with a fall of $1.20 a tonne won’t help today.

On currency markets the EUro fell initially but then bounced solidly to be up on the day at 1.3662 which is just ridiculous on a fundamental basis but who said that matters in a world of free love and cash. Sterling has topped 1.68 with GBPUSD at 1.6816 this morning while USDJPY sits at 102.41.

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The Aussie dollar is much higher this morning as traders and investors see the benefits of high rates and strong growth – it sits at 0.9335 at the moment. You can read more on the Aussie here but while it looks a little overdone on the hourlies the bias seems higher once again.

On commodity markets Jun Nymex crude sits at $102.46, gold is up around $9 to $1,253 while silver is back above $19 oz up 1.54% to $19.05. Copper is at $3.09 but there was more weakness on the Ags with losses of between 1.4-1.6% for corn, wheat and soybeans.

Chinese trade today and non-farm payrolls tonight in the US are a huge end to the week. German industrial production and trade data for Germany, France and the UK are also important although less so.

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