After ECB surprise, investors brace for Opec, US jobs data
MARKETS EXPECTING MORE VOLATILITY AHEAD OF RELEASE OF EMPLOYMENT REPORT
Investors still dizzy from Thursday’s roller-coaster ride after an underwhelming stimulus package from the European Central Bank braced for more volatility after the latest US jobs report yesterday.
The prospect of less ECB stimulus than markets had discounted pushed stocks deeper into the red, while the Euro snapped back after soaring 3 per cent on Thursday, its biggest one-day rally since March 2009 and third largest in its history.
European bonds lost more ground, after Thursday saw the biggest rise in short-dated German yields for almost five years and the US yield curve steepened the most since July.
“The market’s verdict was crystal clear: disappointment on all fronts. We think it will be very difficult to arrest this ensuing momentum in the near term,” RBC Capital Markets strategists said.
At midday in Europe, the index of 300 leading European shares was down 0.4 per cent at 1,457 points, extending Thursday’s 3.3 per cent slide. That was its biggest fall since August 24. Britain’s FTSE 100 was down 0.2 per cent and France’s CAC40 and Germany’s DAX fell 0.6 per cent. German and French stocks were on course for a weekly fall of 5 per cent.
Earlier in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1 per cent. Japan’s Nikkei tumbled 2.2 per cent, down 1.9 per cent for the week, the most in three months.
US futures pointed to a rise of around a quarter of one per cent at the open, rebounding from Thursday’s 1.4 per cent slide, its biggest fall since the end of September.
Payrolls Friday
The ECB cut its deposit rate by a tenth of a percentage point, to -0.30 per cent, on Thursday. Expectations were it would be cut 0.15 to 0.20 percentage point.
The central
bank
also
left unchanged the amount of government bonds it buys and extended its bond-buying programme six months, instead of lengthening it to a year or even making it open-ended.
Traders scrambled to unwind short euro positions they had been building since late October, when Draghi said another round of stimulus measures was coming.
Yesterday, the euro was trading at $1.0885, a cent down from its post-ECB peak just under $1.10. The dollar index against a basket of currencies, which hit a 13-year high of 100.51 before the ECB drama, bounced back to 98.22.
Federal Reserve Chair Janet Yellen, speaking before Congress’ Joint Economic Committee on Thursday, said the United States may be “close to the point at which we should be raising” rates.
She also said the US economy needs to add fewer than 100,000 jobs a month to cover new entrants to the workforce, perhaps setting an implicit floor for jobs growth that policymakers want to see. That would be a fairly low bar given that economists’ median forecast was 200,000, when even the most conservative forecast in a Reuters poll of more than 100 economists was 150,000.
“While markets would probably respond very negatively to a number of around 100,000, I don’t think even this would be enough to deter Fed officials, so the bar really is very low,” said Craig Erlam, senior market analyst at Oanda.
Even after the ECB surprise and some weak US data lately — notably the manufacturing sector’s biggest contraction since 2009 — traders are still pricing in about a 75 per cent chance of a rate increase this month and possibly two more next year.
European bond yields drifted higher after Thursday’s surge.
The 10-year German yield was up 5 basis points at 0.71 per cent, its highest in almost a month.
The US 10-year yield eased back a couple of basis points to 2.29 per cent.