Originally published by Rivkin Securities
The euro gained +0.37% overnight and European yields rose as Mario Draghi signalled there was less urgency for monetary policy. The ECB also announced the expiry of the LTRO program which provided cheap finance to banks which was expected. While the Euro-zone has certainly shown signs of a broadening economic outlook through recent PMI reports, Draghi continued to highlight that there remains “no sign yet of a convincing upward trend on underlying inflation”.
ECB officials over the next few months are likely to adopt a more optimistic tone in line with the improving Euro-zone economy. However they will be cautious to not sound overly hawkish to risk a strengthening Euro and tightening financial conditions at a time when yields are already rising thanks to the Fed.
European equities edged higher, with both the Euro Stoxx 600 and DAX 30 finishing +0.08% and +0.09% higher respectively while the FTSE 100 declined -0.27%. European sovereign yields rose, with the Germany 10-Year gaining +5.2 basis points as did the French 10-Year, up +6.6 basis points. In the US both the S&P 500 and Nasdaq 100 also finished in positive territory, up +0.08% and +0.02% respectively.
The US Dollar Index was modestly weaker, down -0.14% despite rising US treasury yields with both the two and 10-year gaining +2 and +5.4 basis points respectively. Tonight we will get the all-important non-farm payroll report with 190,000 jobs forecast to be added in the month of February. The market will be looking for the report to confirm a rate hike when the Fed meets on March 15th and a reading above 100,000 should be sufficient for this.
Oil prices pushed lower for the fourth session with both WTI and Brent crude declining -1.13% & -0.98% respectively. The first chart below shows oil prices closing below the key psychological support level of US$50 per barrel. While this suggests the further likelihood of near-term weakness down towards US$48-US$47.5, in the near-term the extremely oversold nature of momentum indicators does suggest the decent probability of a short-term bounce.
Locally the S&P/ASX 200 finished -0.32% lower on Thursday although we can expect to retrace some of those declines this morning with ASX SPI200 futures up 7 points in overnight trading.
Data releases:
· Australian Home Loans & Investment Lending (MoM Jan) 11:30am AEDT
· German Trade Balance (MoM Jan) 6:00pm AEDT
· UK Industrial, Manufacturing & Construction Output (MoM & YoY Jan) 8:30pm AEDT
· UK Trade Balance (MoM Jan) 8:30pm AEDT
· US Non-farm Payrolls (MoM Feb) 12:30am AEDT
Chart 1 – Brent (Blue) & WTI (Purple) Crude Oil
