Indices Steady Themselves on Expectations of Dovish ECB Policy and Rate Cut

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Stock Market Trading

: 06 June 2014

European equities are set to open higher this morning, buoyed by overnight moves in the US and Asia.

Although Mario Draghi lobbed a few dovish grenades in the form of rate cuts and cheap bank loans at the deflation monster, some European traders seem to have been disappointed that he didn't pull out the quantitative easing bazooka and kill it off before it starts causing carnage in Eurozone cities.

Nevertheless, whilst Europe had a fairly muted reaction, other regions were more impressed.

US stocks rose to fresh all-time highs, with the Dow closing 102 points higher at 16,832, and Asian markets seemed quite pleased with themselves.

This might be because most of the money flowing out the ECB's coffers, as a result of the negative marginal lending facility, will probably be chasing yield in these regions, rather than actually being channelled into the European economy.

Although it's Nonfarm Friday, there's a lot less trepidation surrounding today's figure because of the flurry of activity caused by Draghi yesterday.

The ADP figure this week came in a lot weaker than expected but this didn't seem to have any impact on the bull market.

Given the current strength and stability of the move higher, even if the BLS figure surprises to the downside, the bulls may well concoct some reason to shrug it off and keep rallying.

With the FTSE and DAX perched just below their all-time highs and the CAC completely detaching itself from its domestic economy by outperforming them both this year, the bulls could be about to rip out the bears' jugular.



Stock Market Trading

: 05 June 2014

European equities are expected to open flat as traders hunker down ahead of the central bank meetings.

Expectations are for the ECB to let slip the dogs of dovish monetary policy today with, at a minimum, a cut in the main interest rate.

With the robust German economy probably the only thing keeping the Eurozone's paltry growth and inflation rates on the right side of zero, demands for action from the ECB are turning into bleating pleas.

However, with so much already priced in and Draghi's history of talking the talk but not walking the walk, another impotent outing could see risks to the downside.

In the UK, traders are not expecting any change from the BoE today and rates are set to remain at record lows once more.

However, the generally robust economic data of late, not least yesterday's solid Services PMI, continues to argue for a hike sooner rather than later.

With Tuesday's Nationwide house price inflation data showing that the housing market continues to storm ahead, and the Halifax figure set to concur this morning, those estate agents currently enjoying a boon should perhaps start to tread a little more carefully.

A private report on payrolls in the US disappointed the market yesterday, sending equities lower in the early afternoon session.

However, the Beige Book survey revealed that the economy expanded at a 'moderate to modest pace' which was well received by investors already cheered by a larger than expected pick up in the service industries.

In truth, many market participants have already positioned themselves ahead of the employment report on Friday and are just finding excuses not to push things too much one way or the other.

Ultimately, the Dow Jones managed to close 10 points higher at 16,735.



Stock Market Trading

: 04 June 2014

European equities are set to continue drifting lower as traders pass the time until this week's big economic releases.

This caution was reflected last night as the Dow Jones finished 6 points in the red at 16,728.

With no one in a rush to do anything ahead of the central bank meetings and payrolls, equity indices are still hovering around their recent highs and the natural position squaring is leading to a slight consolidation.

Having said that, today's UK Services PMI and US ADP jobs data may be able to jolt traders out of their lull.

Last month's surprise spike in the service sector was taken as evidence of the UK's economic success story, and given the amount of business that estate agents are seeing at the moment, we could be in for another upside surprise.

Likewise, last month's better than expected ADP figure preceded a huge upside surprise in the Non-Farm Payrolls, so expect any deviations from the consensus today to be extrapolated to Friday's big figure.

Any improvement in the labour figures would add to the growing belief that the US economy is recovering amid a stable environment, which helps to explain why investors ignored the first quarter contraction.



Stock Market Trading

: 03 June 2014

European equities are set to drift lower as risk appetite wanes.

With the major indices perched near key levels and market moving releases expected from central banks and the BLS later this week, traders are content to sit on the sidelines for now.

Although there are a few minor titbits of data out before then, it's unlikely that traders will give them much credence.

Even the farcical double revision of the ISM Manufacturing figure failed to have any lasting effect on markets, with the reading finally settling at 55.4.

The Dow Jones managed to reverse an early slump, ending 30 points higher at 16,740 after hitting a fresh all-time high of 16,743.

It seems that the equity markets have managed to shrug off last week's growth report which showed the first contraction in the US economy for 3 years.



Stock Market Trading

: 02 June 2014

European equities are set to start the month with a pop as the low volume, no news rally continues.

With few catalysts to explain the move other than traders chasing momentum, record closes in the US on Friday are certain to give the European markets a nudge higher today.

However, as is always the case with the first week of the month, the uncertainty thrown up by the central bank meetings and Non-Farm Payrolls may keep a lid on the irrational exuberance.

Despite a surprise drop for the US consumer spending, the Dow Jones pushed higher on Friday, closing 24 points up at 16,711.

At the same time, consumer confidence plunged by more than expected in May but that did not stop investors moving the Dow to a fresh all-time record high of 16,750 in overnight trading.

And, at the time of writing, it appears that the bulls are still in control.


By Jonathan Sudaria, 6 June 2014


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