Draghi delivered on his plan to address the debt crisis overnight which in and of itself is newsworthy given all the false steps and miss starts we have seen over the past year. Stocks, the Euro and the Australian dollar rallied strongly on the news.
The plan, now known as “Outright Market Transactions – OMT”, is essentially as leaked yesterday whereby the ECB will buy unlimited short end bonds (1-3 years) of countries who who formally ask for help and sign up for oversight. It’s purchases will be sterilised so for every dollar they put in via these bond purchases they will be withdrawing from somewhere else along the curve. Oh, and the ECB ranks with everyone else so they don’t have seniority for the bonds they buy
Draghi was clear that the Euro project is irreversable and that the ECB remained committed to taking out what he might call unreasonable volatility from the bond markets of nations under pressure. Crucially, as I noted before the countries have to make the step to ask for help and cede some sovereignty.
The Bundesbank is opposed as you would expect and the German press was apparently up in arms but Draghi got his way which is a powerful signal for markets that perhaps, finally, Europe will get serious about saving itself.
This was the message heard load and clear by stock and bond markets. In Spain the 2 year note fell back below 3% for the first time since this years carnage kicked of in April. Likewise the Italian 2 year rate fell to its lowest level since March this year. On the bourses of Europe it was green, green, green with the FTSE up 2.11%, the DAX up 2.91%, the CAC up 3.06% while Madrid was up 4.70% while Milan was up 4.30%.
For all the concerns I still have about Draghi’s plan not addressing the growth problems of Europe (he said the risks to growth are on the downside overnight) he has at least both delivered on a promise, which is a first, and succeeded in stabilising the European situation from the destabilising volatility that had been occurring. Hats off to him.
In the US the data was OK with the Services Sector ISM rising to 53.7 and beating expectations of a fall from the previous month. Likewise the employment data was good in the US with the jobless claims a little lower than forecast and the ADP employment survey stronger printing 201,000 jobs against expectations of 140,000. Even the employment sub component of the Services ISM was strong jumping from 49.3 previously to 53.8 .
This strong data coupled with the ebullience from Europe, washed across the Atlantic and saw some very large moves. The Dow was up 244 points or 1.87%, the S&P 500 rose 2.04% to 1,432 and the NASDAQ was up 66 points of 2.17%.
AUD/USD: For the last two days I have said “We’ve been targetting lower for some time and I noted yesterday that we may be looking for a slowing in the fall or a bounce” and we got that in the past day or so and beautifully too. The candlestick for the bounce of 1.0165/75 support we identified was sensational as was the overnight move to 1.0298. The 38.2% resistance level from the sell off sits at 1.0309 today so this will be hard to break and above here the 200 day moving average and 50% retracement levels at 1.0341 and 1.0353 respectively loom large:
DATA: First Friday of the month is always non-farm payrolls day and tonight’s number will be very important in adding or subtracting to last nights ebullient mood. In Australia today we get the AiG performance of construction index.
Here is today’s data and you can click here for the full week’s calendar. Please note that data coloured blue is important to me and that which is coloured red is important to everyone.
And here is how the markets closed at 6.25 this morning courtesy of AVATrade
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