CMC Markets | Feb 05, 2015 16:39
European markets were pulled down on Thursday by an unexpected move by the European Central Bank to revoke a waiver that allowed banks to use Greek government debt as collateral for loans. Greek banking shares pulled the Athens General-Composite equity index lower which had a knock-on effect on banking shares across other European nations.
The condition for the ECB to allow banks to use non-investment grade Greek bonds was the Greek government’s commitment to the Troika-created bailout program. Greek PM Tsipras and FinMin Varoufakis have been fairly overt about their plans to at least change the bailout program, if not write-off debts.
Greece is officially still part of the rescue plan until February 28 so by freezing out Greek bonds now the ECB have jumped the gun a bit, presumably in an effort to raise the stakes for Greek leaders ahead of the deadline.
The ECB’s decision wasn’t expected so the shock value sent global shares lower but as long as Greeks still have access to the Emergency Liquidity Assistance (ELA) program and the ECB begins printing next month, there should be no immediate cause for concern.
In a mark of increasing desperation, the Danish central bank has cut its key deposit rate to -0.75%. Even with all the strife, the citizens of Denmark may even be wishing they are part of the Eurozone as the Krone peg to the single currency appears to be cracking apart by the day. After years of price stability with the rest of Europe, the Danish economy would likely not be prepared for a sudden appreciation.
Indices in core countries were not as hard hit as other peripheral nations which suffered the most in the European debt crisis alongside Greece with the German DAX drifting lower towards its January peaks at 10,800.
After relapsing yesterday, oil prices resumed their advance on Thursday and limited the damage to UK equities from the prospects of turmoil surrounding Greek’s new government and its Troika rescue program.
The Bank of England kept rates and the asset purchase program on hold at current levels.
BT Group (LONDON:BT) was running upfront in the FTSE 100 after signing the dotted line on its acquisition of mobile operator EE but the benchmark index was generally pulled lower by mining stocks as industrial metals prices restarted their slide.
Astrazeneca Plc (LONDON:AZN) shares were big fallers after the company reported disappointing fourth quarter earnings.
Another surge in Oil prices helped US markets to a strong start on Thursday as unemployment claims rose less than expected ahead of the non-farm payroll report on Friday.
While there have been some standout disappointments, according to Reuters 73% of S&P 500 companies who have reported so far have beaten estimates an improvement over the 69% seen in the past four quarters.
Ahead of earnings, Twitter Inc (NYSE:TWTR) has made a second announcement in as many days that could significantly add to revenue prospects at the firm. Twitter has struck an agreement with Google to make its tweets more searchable online, this is on top of agreements already in place with Microsoft’s Bing and Yahoo! search engines. The more exposure Tweets get outside of the Twitter platform the greater the potential user growth and advertising value of ‘promoted tweets’.
The US Dollar was mostly lower on Thursday after oil prices rallied as much as 4% and mixed economic data including a widening of the trade gap thanks to the strength of the dollar caused a rise in imports.
Raised forecasts for the Eurozone economy by the EU thanks to falling oil prices and a lower euro sent EUR/USD back above 1.14.
GBP/USD rallied to its highest in a month in sympathy with the euro since the Bank of England decision to keep rates on hold was essentially a non-event.
Volatility is rampant in oil markets right now; prices are gyrating up and down by 5% every other day as traders jostle for position with some calling for a bottom to the seven-month downtrend and others waiting for the next leg lower.
On Thursday crude oil prices jumped again by as much as 5% despite another high inventories reading the prior day on calls for the US rig count to drop further signalling an eventual slowdown in oil production.
Copper prices made a sharp about turn, initially down by as much as 2% before turning slightly positive alongside oil prices.
Gold prices were flat ahead of the US unemployment report tomorrow but Silver lost ground again dipping back below $17 per oz with many traders long the market shaken out by the big declines seen last Thursday Jan 29.
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Written By: CMC Markets
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