Stocks rally as ECB unleashes easing bazooka

Mario Draghi’s parting gift to the markets was to announce both interest rate cuts and a restart to quantitative easing at yesterday’s ECB rate meeting. Reports that Trump was considering an interim trade deal to avoid the next set of tariffs also lifted sentiment, though this was subsequently denied by a senior Administration official. Negotiators are scheduled to meet next week.

US30USD Daily Chart

Source: OANDA fxTrade

• The US30 index rose for a seventh day yesterday, reaching the highest level since July 25

• The 55-day moving average has risen to 26,589 and the next possible resistance point could be the July 15 high of 27,389

• US core consumer prices came in hotter than expected in August, gaining 2.4% y/y versus expectations of a 2.3% increase. This halted a bond rally in its tracks and prompted rotation from bonds into equities. Today, August retail sales are expected to show a 0.2% m/m gain, a slower pace than July’s +0.7%.

DE30EUR Daily Chart

Source: OANDA fxTrade

• The Germany30 index climbed to the highest level since July 25 yesterday after the ECB easing moves. That was the seventh consecutive daily gain

• The gap between the 55-and 100-day moving averages has narrowed to 19 points

• The ECB reduced the deposit rate to -0.5% from -0.4%, and said it will buy 20 billion euros worth of debt each month from Nov 1 until inflation is nearing its target rate.

XAU/USD Daily Chart

Source: OANDA fxTrade

• Gold rebounded strongly yesterday after the ECB turned on the quantitative easing taps

• At one point, the precious metal had gained as much as 1.8%, which would have been the biggest one-day gain in three weeks

• The Federal Reserve is widely expected to continue the dovish tone from central banks around the world next week, which should continue to lend support to gold.