ECB Keeps Key Rate Unchanged But Signals Readiness For Further Stimulus, Commodities Higher On Weaker USD, ASX SPI200 Futures Down 32 Points

European equity markets were relatively flat on Thursday as the ECB left its key interest rates and quantitative easing purchases unchanged. Both the Euro Stoxx 600 & FTSE100 slipped -0.07% & -0.43% respectively and the DAX30 managed to close modestly higher up +0.14%, the Euro finished +0.10% stronger after reaching the weakest level in a month while the Pound also closed +0.19% higher.

In the press conference following the policy decision, ECB President Mario Draghi reaffirmed the market view that the ECB stands ready to add further stimulus if needed once there is a clearer understanding of any impact from Brexit stressing the “readiness, willingness, ability, to do so”. Draghi did not provide any details of what stimulus could be added with concerns already growing about supply constraints for bond purchases as part of the quantitative easing program which he addressed by stating “in the past, we’ve given enough evidence not only of our readiness, willingness to act but also to be able to adapt our programs so as to reach the objective”.

Draghi also noted that following the significant volatility in the aftermath of the Brexit outcome the markets had shown “encouraging resilience” however the governing council will continue to monitor economic and financial developments closely.

New U.K. Prime Minister Theresa May has continued a trip across Europe this week meeting with key European leaders including Germany’s Angela Merkel and France’s Hollande. Both Hollande and Merkel has stated that there can be no pre-negotiations, either formal or informal, they both noted the importance of being prepared for negotiations. May and her chief Brexit negotiator David Davis are getting a sense of how difficult negotiations could be with both EU leaders stating that there cannot be access to the single market without the free movement of people, something Brexiteer campaigners suggested was achievable.

In the U.S. equity markets took a breather as the S&P500 pulled back after reaching a new all-time high on Wednesday. Both the S&P500 & Nasdaq100 declined -0.36% & -0.22% as the U.S. Dollar index fell -0.32%. Initial jobless claims for July 16th beat estimates of 265,000 with a reading of 253,000 remaining consistent with signs of a healthy labour market while continuing claims for July 9th also surpassed estimates of 2.137m with an actual of 2.128m. U.S. House Price Index (MoM May) missed estimates of +0.4% with a gain of +0.2% while existing home sales (MoM Jun) exceeded expectations of a -0.9% decline gaining +1.1%.

A weaker U.S. Dollar helped commodity prices with the exception of oil prices, both WTI & Brent crude oil fell -0.42% & -1.99% respectively while copper gained +0.18%, as did natural gas +1.28% and iron ore +2.55%. Elsewhere precious metals spot gold & silver benefited for the weaker dollar, up +1.17% & +1.95% respectively shown on the chart below. Demand for the safe haven metals has been reduced over the past fortnight as investors switched into riskier assets following expectations of further easing from central banks and the S&P500 reaching all-time highs encouraged them back into equities.

Locally the ASX200 closed +0.43% higher along with the Australian Dollar which finished up +0.23% however the market looks set for a softer open this morning with ASX SPI200 futures down 32 points in overnight trading. If you’re interested in trading global markets and still need practice, click here to open a free $100,000 Rivkin Trader account.

Data releases:

·         Germany Markit Manufacturing, Services & Composite PMI (MoM Jun) 5:30pm AEST

·         Euro-zone Markit Manufacturing, Services & Composite PMI (MoM Jun) 6:00pm AEST

·         U.K. Markit Manufacturing, Services & Composite PMI (MoM Jun) 6:30pm AEST

·         Euro-zone Government Debt & Deficit (Q1 2016) 7:00pm AEST

·         Canadian CPI (MoM & YoY Jun) 10:30pm AEST

·         U.S. Markit Manufacturing PMI (MoM Jul) 11:45pm AEST

·         U.S. Baker Hughes Rig Count (Jul 22nd) 3:00am AEST

Chart 1 – XAUUSD/XAGUSD


Source: Rivkin, Bloomberg

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This article was written by James Woods - Global Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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