US markets fell aggressively

Good Morning all!

The economic data comes thick and fast for European markets this week as today sees more in the way of headline data. Mario Draghi takes centre stage as the market awaits the next instalment of his plan to turn around the failing Eurozone economy. Fears surrounding the Eurozone and the end of the bond buying program in the US have started to hit already jittery Asian markets. Overnight Asian stocks fell for a 5th consecutive session as pro-democracy demonstrators vowed to escalate their protests as a deadline put in place for Hong Kong Chief Executive Leung Chun-ying to resign quickly approaches.

US markets fell aggressively overnight with the Dow losing 1.4% due to markets finally realising that the QE stimulus package is about to end. This reading was despite a strong ADP payroll number that showed that hiring accelerated in the last month. The problem with the US economy at the moment is that the reading are too good,. Any positive news from the economy is being jumped on by the Hawks and is seen as heaping pressure on Janet Yellen to raise interest rates, or at least contemplate doing so in the near term rather than the drawn out plan already in place. This hysteria around rates will most definitely increase tomorrow as the full jobs report is released in the US. A stronger than expected non-farm payroll number is likely to get officials at the Fed asking the same questions, as it seems this global obsession with raising interest rates shows no sign of dying away.

The major story today is of course the ECB rate decision, and while we expect no movement in rates it is the potential start of a full blown QE program that has got grabbed the markets attention. Firstly I don’t expect to see a QE program announced at today’s meeting. Last time out we saw a QE lite plan that is more than likely going to be fleshed out by Mario Draghi today. However I do expect this to upset the markets , especially after the CPI readings earlier in the week. We have seen rate cuts, LTRO’s and TLTRO’s as well as many more initiatives over the last few months, all of which have made no difference to the ultra-low inflation figure that Mario Draghi and the ECB are desperately trying to drag higher. It is plain to see now that only a full blow round of government bond buying will appease the markets. The Euro has continued its slump against the strong dollar and European equity markets have rallied on anticipation of a plan each month. However this month it seems that equity markets are a little more subdued and cautious ahead of what is likely to be a day where Mario Draghi tries to flesh out a plan that most people see as second fiddle to the major plan waiting patiently in the wings.