ECB's Constancio warns of downside risks to Eurozone growth

The Day So Far

Bulls back in charge this morning as several dovish comments from ECB members outweighs the potentially ugly geopolitical fallout from the downing of the Russian jet yesterday morning. Firstly, at 9am ‘monetary officials’ suggested that staggering charges on banks hoarding cash, similar to the extension of negative rates, was being considered by the ECB ahead of next week’s meeting. This was followed up by dovish comments from Constancio who warned that risks to Eurozone growth were to the downside. Although Constancio is a well-known dove and represents one of the poorer-performing Eurozone nations, Portugal, markets certainly reacted strongly as hope builds that the ECB will array a variety of measures on the 4 th December, supposedly aimed at countering persistently low inflation. The Euro crashed below the 1.06 handle, its lowest level since April, while the Bund broke back above the Friday highs. Equities also leapt higher, but remain below their monthly highs. Crude has broken back below $43 handle after the API data last night revealed another considerable build, putting a dampener on the strong rally yesterday following the “stability” comments out of Saudi Arabia.

The Afternoon View

Data-have calendar today due to it being Thanksgiving holiday tomorrow in the US. Particular highlights are the Durable Goods Orders at 13:30 BST and the University of Michigan Consumer Sentiment at 15:00 BST. Durable Goods should take precedence over the other data releases taking place at the same time, including Initial Jobless Claims and Personal Income. We are unsurprisingly looking for a short in the euro if we make it back to pivot with a slow grind lower likely in that currency pair before next week’s ECB meeting. Our short bias in the S&P continues, the level just above 2090 has worked superbly in all week in range bound markets and we see no reason to change it now. Short crude from pivot ahead of the DOE release and short t notes are the other calls, t notes briefly seeing some bullish action on the geopolitical risk yesterday but if the plethora of US data today is on balance better than expected then we expect a resumption of the recent downwards pressure in US fixed income

•  Download Full Indices and Oil strategies