Mario Draghi disappoints taking stocks lower but buoying the Euro, Yen and Aussie

October 3, 2014

Things could be really different for Europe if they had a number of sovereign central banks and more than one currency. Each nation would have been free to react to its economic weakness and given a kick start to growth.

Unfortunately the political Euro experiment is a disaster for medium term economic flexibility as we have seen over the past 5, 6 or 7 years.

Last night was a little more of the same as ECB President Draghi was unable to give the detail the market has been looking for on how he plans to make QE Euro style work. Whether this is because he is unwilling, or unable due to objections within his board, to take the next step toward quantitative easing is difficult to tell

But the key is he is hamstrung by an unwieldy structure.

This helped Euro overnight, but let’s face it it’s due for a bounce. Longer term though it highlights why the Euro needs to fall further.

So stocks paid the price, especially in the periphery with stocks in Milan down 3.92%. In Madrid they fell 3.12% and on the CAC in Paris they were 2.80% lower to 4,243. The DAX in Frankfurt dropped 1.98% to 9,196 and even UK stocks fell with the FTSE off 1.7% to 6,446. Confirming the disquiet in European markets Italian and Spanish bonds sold off rising 4 and 5 points respectively although German 10 year bunds were steady at 0.86%.

In the US the European pain hurt early but the market recovered from around lunchtime and by the close US stocks were flat. The Dow finished down 0.02% to 16,801, the Nasdaq was up 0.18% to 4,430 while the S&P 500 was flat at 1,946 20 points higher than the low at 1,926!

On the data front the jobless claims fall to 287,000 last week was better than expected and the recent trend could suggest a very solid result for non-farm payrolls tonight in the US.

Interestingly, in the context of the US recovery from the lows, the local market has had a shocker in overnight futures trade with the December SPI 200 down 19 points to 5,262 bid. iron ore was a bit better bid overnight and the banks are attractive for yield hunters so maybe things might be better than expected by futures traders. In the end though it all depends on non-farms tonight.

It’s volatile at the moment trading SPI!

In Asia yesterday the carnage was terrible across the Bourses of the region. The Nikkei dropped 2.61% to 15,662, the hang Seng was 1.28% lower to 22,933 while Shanghai was a little higher up 0.27% to 2,364. Markets will be focussed today on Chinese and Japanese services PMI.

On currency markets the US dollar continues to reverse its recent strength. Mario Draghi’s lack of articulation of his QE plans sees Euro up at 1.2674, USDJPY is down at 108.35 and looking close to a huge move lower on the technicals. The Aussie has rallied back to 88 cents and GBP is at 1.6151.

Target 107.

On commodity markets iron ore December futures rose 31 cents to $79.19 a tonne while Newcastle coal fro the same month were 75 cents higher at $66.30 tonne. Elsewhere crude staged a big recovery from below $90 a barrel at one point to finsih up 0.73% to $91.39. Copper is just hanging on to $3 down 1% while gold is at $1,214. On the Ags wheat is up 0.96%, corn was up 0.44% and soybeans were 1.11% higher.

On the data front it is services PMI day around the world which is important with Chin, Japan and the AiG PSI the key in Asia before we head to Europe for the releases across the continent. But it is all secondary to non-farm payrolls tonight in the US. The market is expecting an up tick from last months weak 142,000 to 215,000.

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