Mario Draghi, head of the ECB, did what the Markets wanted and expected by initiating a Trillion-Euro Quantitative Easing Plan (QE) to average 60 billion Euro/mo. The Markets reacted accordingly with Stocks rocketing up around the Global Exchanges (Dow, S&P 500, DAX, FTSE, HSI, CAC 40) with European shares hitting 7 year highs. The Euro did what it does best and weakened dramatically all day, now sitting at 1.1364 against the US Dollar. Could parity be far off?
The ECB is trying to push the Euro-Zone annual Inflation rate to 2% and to keep out of a Japanese style deflation spiral by sucking up debt and trying to spur growth. There are doubters out there that this enormous plan will work, especially in Germany where their history from the early “thirties” of printing fresh money proves this tactic is not the recipe for success.
No other currencies made any major impacts and were mixed at best, as all eyes were on the EUR/USD pair.
OIL is lower at the end of the trading day sitting at 46.50 down about 3 Dollars from the open. United States OIL drillers are collapsing by the hundreds as WTI has lost 55% of its value in 7 months. Jobs are being lost and major projects are now cancelling. It seems OPEC’s plan to crush OIL Shale operations by keeping OIL prices low is working out just nicely for them. Supply is still over-abundant as US hits an 80 year high in their stockpiling.
Gold and Silver both recovered later on in the US session after some early profit taking was done before the ECB announcement. Up on the day, both these commodities have had an incredible run since the start of 2015, gold a nice positive move of approximately $120.00 during that time. Gold is at 1301.00 with next major resistance around the 1345 area, a major pivot zone.
There is enough red tag news today to finish the week off with some more volatility. China, France, and Germany all have their Manufacturing PMI coming out, a leading indicator of a Countries economic health. Great Britain and Canada will be releasing their retail Sales for last month, always a powerful market mover. To finish off the week Canada “Core CPI” comes out giving a good representative of overall Inflation.
Monday trading is often a non-event, quieter sessions with no major moves recorded in Stocks or Currencies. Well, yesterday, Monday December 15, was an exception to the norm as the year of 2014 quickly comes to a close.
Wild swings of volatility in Stocks during the latter part of the U.S. session left worldwide Markets with continued losses as Investors confidence seems to be eroding very quickly. What was the catalyst for yesterday’s action that had the U.S. Dollar jump back on track showing gains, with Gold and Silver taking a hit that wiped out all last weeks gains?
There has been an unwinding of major positions by large funds as this week has a quadruple “Witching Event” where various Index Futures and Options expire so profits must be realized and books realigned and balanced before the year end. Many yearly bonuses are also on Wall Street’s high profiles Investor minds!
Uncertainty surrounding Oil prices has helped change Market dynamics as another day of price drops, $2.00 down, now sitting at $55.33 a barrel, WTI, at this moment. OPEC has stated they are not scared of $40.00 Oil, as one of their objectives is to crush North American Shale and Oil Sands projects to make production too expensive, therefore many Companies will go bankrupt. There is a new sense of fear that is emerging and penetrating Investor minds.
Also, we have a Global economic slowdown, therefore less demand for Oil. Commodities of all kinds have less demand. Not only are Oil, Gold and Silver, and Iron Ore, as its price drop has really affected the Australian economy as China has stopped placing orders, with Australian GDP to be revised. Others like platinum, sugar, cotton, soy-beans, also down in price.
The one Country that has come out of this smelling like roses is the United States. Beset with major debt, the Federal Reserve has given up Quantitative Easing (QE), printed stimulus money, and will be tightening their monetary policies with an interest rate hike in the New Year as this coincides with the European Central Bank along with the Bank of Japan with moves to enhancing their QE operations provided more false money for their economies. This formula simply equates to a strong US Dollar.
The Euro bounced around yesterday but did survive as the Russian Ruble is collapsing before our very eyes and much of fleeing Russian money in going into the Euro. The Russian economy is deteriorating at a quick pace with the Ruble losing 50% against the US Dollar this year. What does Russia do? Late last night they announced an interest rate hike from 10.50% to an amazing 17.00%! Lower Oil price has so affected the economy along with Western sanctions.
Today for news releases, a big one for the Euro is German ZEW Economic Sentiment which contains a survey form financial experts for the coming direction of the German economy. Other major events are from China – Manufacturing Inventories, Great Britain will show the results from their Bank Stress Tests, and Consumer Price Index along with Carney speaking later on in a press conference. Then during the start of the US Session, Canada will release their Manufacturing Sales and United States has building Permits out. So all in all, a huge day of major news that will probably top Monday for surprises and volatility, so, Hold onto your Hats!