Sharemarkets will be surging this morning across Asia, starting in Australia, after European Central Bank (ECB) president Mario Draghi left the door wide open to adding more stimulus to the eurozone economy in December.
He refused to rule out a further interest cut for the ECB, and increasing spending on quantitative easing. Draghi indicated the ECB would re-examine its policies at its December 3 meeting, setting up six weeks of intense market speculation and volatility.
Draghi said the ECB stood ready to adjust the “size, composition and duration” of its QE programme. At the moment, it is buying billions of euros of mostly government bonds a month and will continue to do so at least until September next year – comments which triggered a surge in asset prices (but a slump in the value of the euro).
The ECB news came during trading across Europe and the US – and after trading in the US a series of tech majors, led by Amazon, produced a string of solid third quarter results which saw further gains.
The result was an explosive surge share prices in after hours trading, and sent futures trading for the ASX 200 sharply higher in late trading, meaning a big gain is expected today.
Earlier sharemarkets had surged as the euro fell aimed expectations of more to come as traders, who had grown nervous about slowing growth and problems in emerging markets, shrugged off those fears.
As a result, European sharemarkets jumped by more than 2% in many cases and Wall Street saw a 1.9%, 320 point jump in the Dow, a 1.7% rise in the S&P 500 and a 1.65% increase for the Nasdaq. The Stoxx 600 euro index rose by just over 2% on the day.
Helping Wall Street was some solid third quarter report from the likes of McDonald’s, but Caterpillar produced another shocker – down 64% and it again sliced its forecast for the rest of the year and 2016.
But Wall Street will get a further kick tonight, our time, from better than expected results posted after trading closed by Amazon, Alphabet (the old Google) and Microsoft. The Amazon result was a surprise profit and the online giant reported surging sales across the board as it heads into its biggest quarter of the year.
Our market is heading for a 78 point (more than 1.5%) rise in the ASX 200 this morning.
Commodities hardly moved as US oil production and stocks weighed on oil futures and gold futures barely budged in the wake of the ECB news.
The euro tumbled almost 2%, sinking as low as $1.1112, as the spread between European and US government bond yields widened.
Investors poured money into eurozone government bonds, with the yield on the two-year German bond touching a record low of -0.32% and the the Italian-two year yield falling into negative territory, was well. US 10 year yields eased to 2.02%
The ECB’s signal to further grease the credit wheels in the eurozone economy had been hoped for, but the comments from Mr Draghi were stronger than anyone expected and markets are now looking for a Christmas present.
The ECB’s current expansion program is valued at 1.1 trillion euros as it spends 60 billion euros a month buying mostly government bonds. That is slated to go on until September next year. Analysts say the ECB could merely extent that by a year, or step up the buying until September next year.
The ECB however left open the chances of a move in its interest rates deeper into negative territory.
The Financial Times reported that the central bank “could also break an earlier promise to leave interest rates unchanged and cut its deposit rate further into negative territory, a move which is likely to further weaken the euro if implemented.”
That was after the ECB’s central bank’s governing council overnight Thursday held the deposit rate, which it charges on banks’ deposits parked at the ECB, at minus 0.2%. The benchmark main refinancing rate, charged on banks’ borrowings from the central bank, stayed at 0.05%. Both are at record lows.
Mr Draghi told a media conference that cuts into negative territory by other central banks, in Switzerland and Scandinavia, “had led the ECB to reassess where the lower boundary for interest rates lay,” according to the report in the FT.
