Europe
Shares in Europe plummeted today alongside expectations of further ECB intervention after the central bank revised down its economic forecasts but nevertheless left interest rates unchanged and announced no extraordinary further policy action.
Expectations were such that the German DAX rallied to new all-time highs prior to the press conference only to fall over 100 pts when reality sank in that no early Christmas present of QE was coming from the European Central Bank.
Mario Draghi appeared a little wearier in his December press conference, perhaps already looking towards his Christmas holiday. The ECB President has been walking a tightrope of keeping expectations of quantitative easing alive while acknowledging that the governing council has not reached consensus that this is the best course of action to fulfil its mandate of price stability.
It was always going to be a tough sell for markets without a specific timeline for when new policy measures might be enacted. The statement read that the ECB will “reassess” monetary policy “early next year” but Draghi couldn’t confirm that this meant the first ECB meeting of 2015 or that this would involve purchasing government bonds.
Draghi almost used falling crude oil prices as a reason to kick the QE can down the road for another meeting.
As far as the potential for QE in the first quarter; Mario Draghi did say that the decision didn’t need to be unanimous but also said that the 1tn euro balance sheet was not a target nor had consensus; summing the whole thing up saying that “more work was needed”.
Draghi explained the so far low ABS purchase volume by the ECB by the fact that it had only just began and because it is year-end. Both explanations for the low ECB ABS purchases imply an expectation that purchases will increase suggesting the ECB is willing to wait longer until enacting full QE.
UK shares were faring relatively better than the mainland after the Bank of England also left rates unchanged as expected. Airlines were standout performers thanks to strong results from budget airline Ryanair which raised its full-year guidance for a third time.
Ryanair Hldgs (LONDON:RYA) have been improving customer service in a new drive to attract business customers but falling oil prices and strikes at rival major European carriers including Lufthansa has helped the company pickup passenger numbers.
Lufthansa AG VNA O.N. (XETRA:LHAG) pilots need to face the new realities of an austere European economy with high debt piles and budget competition that can no longer afford retirement at 55.
US
Markets in the US fell in sympathy with European stocks over ECB disappointment as energy stocks fell back alongside the price of crude after Saudi Arabia cut export prices to Asia and the US.
The Fed’s beige book indicated widespread gains across the Fed’s twelve districts within the US but global growth is still a headwind to further gains in US shares. A more proactive ECB will be perceived as good for European growth prospects and for US businesses that do business in Europe.
FX
The US Dollar Index was stronger against commodity currencies as oil price fell and also the Japanese yen which hit the 120 handle but fell against the Euro and other European currencies after no action from the ECB.
After dipping through 1.23, EUR/USD rallied back through 1.24, a disappointing non-farm payroll number tomorrow could see more dollar weakness and the euro break above declining trendline which has connected the October and November peaks.
USD/JPY finally hit 120 after months of speculation, the price could hamper further upside in the pair unless new stimulus is announced from the Bank of Japan which won’t be happening until a re-election of Prime Minister Abe
Commodities
Gold and Silver managed to maintain recent price levels above $1,200 and $6 per oz respectively while oil prices fell after Saudi Arabia cut export prices to the UA and Asia.
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