ECB Leaves the Bazooka on the Shelf

Economic Data

- (US) Sept Challenger Job Cuts: 30.5K v +40.0K prior; Y/Y: -24.4% v -20.7% prior
- (EU) ECB left rates unchanged: Main Refinancing Rate at 0.05%; Deposit Facility Rate at -0.20%; Marginal Lending Facility at 0.30%
- (BR) Brazil Aug Industrial Production M/M: 0.7% v 0.1%e; Y/Y: -5.4% v -5.8%e
- (US) Initial Jobless Claims: 287K v 297Ke; Continuing Claims: 2.398M v 2.42Me
- (US) Sept ISM New York: 63.7 v 57.1prior
- (US) Aug Factory Orders: -10.1% v -9.5%e
- (US) Weekly EIA Natural Gas Inventories +112 bcf v +105-109 bcf expected

The skimpy details about the ECB's asset purchase program disclosed this morning have disappointed markets, and European indices are ready to close at their lows following steep declines. The Milan index is down about 3.5%, while Spain and Italy bond yields have moved up noticably. In the US, the S&P500 held the 1945 level all morning before breaking lower after 10:30ET. As of writing, the DJIA is down 0.39%, the S&P500 is down 0.33% and the Nasdaq is down 0.51%.

The ECB left interest rates unchanged, as expected, after last month's unexpected rate cuts. ECB President Draghi provided some more details regarding the asset purchase plan, but failed to put a hard total amount on how much would be purchased. Draghi merely said that the bank's balance sheet would grow back to 2012 levels, which would be about €3.0T compared to near €2.0T today. He also said that the "potential universe of covered bond and ABS purchases" is up to €1.0T. Covered bond purchases will begin in October and continue for two years. Analysts suggest that Draghi's language today would take formal sovereign QE off the table for a long time, hampering his old "whatever it takes" pledge. EUR/USD trading was volatile, whipping between 1.2615 and 1.2690 before and after the announcements.

WTI crude plummeted sharply below $90 this morning in the wake of news that Saudi Aramco would lower prices for the fourth straight month. WTI for November delivery dropped as low as $88.15 before climbing back above $90 in mid-morning trade. There had been reports earlier this month that Saudi Arabia had trimmed production levels in the past month, reports that Saudi was quick to deny. Between falling prices and reports of production cuts, there has been talk among analysts that OPEC members are gearing up for a price war. OPEC has declined to call an extraordinary meeting to discuss the situation, and its next meeting is scheduled for November 27th.

Shares of Salix Pharma are down nearly 3% this morning after CNBC's Faber reported that talks with Allergan have cooled considerably, although it remains unclear if deal is completely off. Salix is in a pending deal to acquire Cosmo Technologies in a tax inversion deal. Alergan's reported $10B offer would disrupt the inversion. Shares of AGN are down 2% or so. Shares of Real D are up 25% or so after Starboard Value offered $12/shr for the firm.

Tesla CEO Musk teased a possible new product announcement on Twitter last night, writing that it is "about time to unveil the D and something else on Oct 9th." There has been plenty of speculation about what Musk meant, including a possible AWD version of the Model S or a new model announcement. The company has said it is developing the Model X sports utility vehicle and revealed plans to deliver a $35,000 electric vehicle, variously called the Model E and Model 3. 

Looking Ahead

- 18:00 (DE) German Chancellor Merkel speaks at Day of German Unity in Hannover
- 21:00 (CN) China Sept Non-manufacturing PMI: No est v 54.4 prior