Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Stocks Fly On ECB Rocket Fuel, Euro Losing Altitude Fast

Published 23/01/2015, 16:47
Updated 03/08/2021, 16:15

Europe

European Central Bank policy dominated trading on Friday as markets front-run the consequences of €60bn in liquidity being added each month starting in March. The euro-US dollar exchange rate crashed below 1.12 for the first time since 2003 and German stocks flew into fresh all-time highs.

German Flash manufacturing PMI falling below expectations was blown aside as a non-issue next to the upcoming injection of euros into markets. In a week and a half the German Dax has added 11.5%; gains at that pace are not sustainable so there should be a pullback next week, perhaps from the 10,800 level.

The FTSE 100 benefitted from QE-inspired global risk taking as well as better than expected UK retail sales numbers for December that grew modestly rather than contract as had been expected. The index has fired through 6,800 and it looks like a matter of time before a run is made at new all-time highs and perhaps 7,000.

The Black Friday effect of pulling Christmas sales forward into November was clearly not quite as pronounced as some had expected. UK consumers out on the splurge will be a boost for UK economic growth but record high credit card applications to fund the expenditure may have its ramifications later.

The slump in copper prices is sending UK mining stocks into a tailspin. Today’s losses are going a long way towards erasing the gains that had been made in recent days following the upsurge in gold prices.

Speculation of more telecoms M&A in response to Hutchison Whampoa (owner of Three)’s £10.5m bid for O2I (PARIS:ALODI) sent Vodafone Group PLC (LONDON:VOD) and BT Group (LONDON:BT) shares higher. The telecoms sector is trying to consolidate but regulators may have other ideas. Ofcom could easily cave-in on their previously stated commitment to four major mobile networks and let the merger take place. If Ofcom puts the dampeners on the Three bid for O2 then telecoms shares could see a big sell-off.

If the Three bid fell through and with Telefonica running out of options that may open the door to Sky to make a lower bid and grab a bargain. Sky bidding for O2 would be in keeping with the drive to provide quad-play services but still keep Ofcom happy with four mobile networks.

US

After a run higher on Thursday US stocks were giving back gains on Friday after disappointing manufacturing data put a lid on prices at the end of a week playing second-fiddle to equities in Europe thanks to the introduction of QE from the ECB.

The Dow Jones looks to be building a base above 17,200 on the back of the accelerating US economy and improving job market but may not be able to produce new highs above 18,100 until there’s a better read on the Q4 earnings season.

General Electric Company (LONDON:GECG) dropped after posting disappointing Q4 revenues while McDonald's Corporation (NYSE:MCD) got a lift with the decline in quarterly sales better than expected.

FX

The US Dollar was stronger against all major currencies except the Japanese yen on Friday. There’s a new QE game in town; some of the flows out of euros are going into Japanese yen

The euro has been sliding quickly ahead of QE in the Eurozone in an amount that exceeded expectations. The question is whether the policy action is starting to be fully priced in.

Recent history of the OPEC decision on oil prices would suggest markets do not fully price in what is a consensus opinion about upcoming events. The trend is your friend until it ends and as such a continued bearish bias towards the euro is probably warranted.

EUR/JPY will be interesting; it has broken 133.50, the low from October and could see rapid declines given the run up it had after the last bout of Japanese quantitative easing. This is not to say it has not already seen huge selling; EUR/JPY has fallen 1300 pips in 2015, 500 of which were in the last two days. The upside risk for euro-yen will be if the Japanese respond tit-for-tat against the latest ECB actions.

Commodities

Gold came in for some “selling the news” declines on Friday after touching the $1,300 round number following the news of future euro debasement via QE. Rallying equities will diminish the safe-haven demand for gold but the expansion of central bank balance sheets may prove an over-riding factor as investors seek a store of value that cannot be manipulated by central banks.

The death of the King of Saudi Arabia offered an opportunity for a short-covering rally with Oil prices still consolidating since the lows on Jan 13. The new King of Saudi Arabia is unlikely to mean a new policy towards an output cut so pressure will remain to the downside until the fundamental oversupply is addressed or there is a big drop in the value of the US dollar.

Copper prices were pummelled on expectations of ongoing weak demand from its biggest consumer after Chinese manufacturing was shown to still be in contraction according to the latest HSBC PMI.

CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

Original Post

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.