ECB failure to impress sends global equities reeling

The Day So Far

Slight rebound in some of the markets hit hardest by the ECB’s disappointing showing yesterday. The policy moves announced certainly weren’t insignificant, with a further 0.10% cut to the deposit rate and an extension of the QE programme, but investors reacted negatively purely because expectations had far outgrown what the ECB could reasonably have been expected to deliver. The euro soared 400 points versus the dollar as those heavily short the currency pair going to into the announcement on the prospect of ‘Super’ Mario delivering once again were forced to cover, while Stoxx fell 3.5% in cash markets. The carnage continued through the US session, S&P falling as much as 55 points on the day, while in the fixed income space the Bund and t notes felt the pain, the Bund experiencing its biggest single day sell-off of the year and t notes similarly hammered. This news is likely to outweigh the NFP release today unless the number is well outside the expected range.

The Afternoon View

A colossal week for economic data and newsflow ends with a bang today with the OPEC output release due this afternoon and the NFP release at 13:30 BST. Markets are looking for a 200k headline figure to go with last month’s 271k beat and solidifying the case for the Fed to hike rates in 12 days time. It would take an extraordinarily bad (below 100k) to perhaps alter the Fed’s intentions, while anything other than a big miss (looking out for prior revisions as well) and the dollar to reclaim some of the ground lost against major currency pairs yesterday although a return back to 1.05 handle in the euro/usd is highly unlikely at this stage with ECB disappointment still forefront in investors’ minds. Equities will find it hard to lift as a good number bring the reality that the Fed hike is coming without the cushion of additional stimulus from the ECB, while a bad number, providing not too bad is unlikely to sway the Fed this month. T notes remain a sell, real damage done yesterday there even though it was largely led lower in correlated selling in the Bund. However, a really low number clouds the short case for the 10 year given that is will likely reduce the prospect of further aggressive hiking in Q1 2016 so they could see a bounce on a big miss. We are still bearish on crude, our 2 break of that key handle and a push towards the yearly lows.

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