Daily Market Update – January 22, 2015 (Close)
All eyes were on this morning’s announcement from the European Central Bank regarding an initiation of its version of Quantitative Easing.
Over the past few months as all eyes had previously been focused on the ECM in expectation of the very same announcement, there had been nothing but disappointment, as Mario Draghi, the President of the ECB talked a great game and occasionally spoke with a John Wayne like swagger and confidence, but delivered on none of it.
This morning, although this has been said before, had the appearances of being different.
The reason it was being given some greater likeliness of finally really be different was because of a credible leak yesterday that gave details of the monthly size of the ECB bond buybacks. The figures suggested seemed to be right along the lines of what many believed it needed to be and was received warmly, although with nowhere near the enthusiasm of previous well placed source leaks or educated guesses regarding the FOMC’s upcoming actions, from the Wall Street Journal’s Jon Hilsenrath.
Yesterday’s leak may have been what was responsible for the market’s decisive turnaround shortly after the opening bell.
This morning, ahead of the expected announcement the futures were just mildly higher, so it remained to be seen what effect, if any and in what size the reaction might be and, of course, for how long that reaction would last.
About an hour before the official announcement came word that European interest rates would remain unchanged and even though that was not a surprise it gave a small bump to the futures.
Later, when Draghi spoke, not only confirming that action was going to begin, he indicated that the size of the monthly European bond buyback would be 20% larger than thought and would last longer than anyone thought and in fact would be open-ended, lasting until at least September 2016.
The initial response was ebullient in the futures market, but did calm down a little.
In fact, shortly after the opening bell the market actually turned negative, but somewhere along the line, about 45 minutes after the open, the market took off, having really embraced the news.
While the news may be beneficial for European stock markets in the longer term, there’s really no reason to think that it will be the kind of news or provide the kind of fuel needed to send US markets higher for anything much more than a day or so, but it was certainly good to see, even if it is short lived.
The real impetus for further increases could still be upcoming earnings, although thus far, they haven’t been very impressive, although we really haven’t heard anything yet from those businesses that would reasonably be expected to benefit from a severe drop in energy prices.
Interestingly, in an interview yesterday, the CEO of Dow Chemical, which has small oil holdings as part of a Kuwaiti partnership and has seen its shares drop sharply in concert with oil prices, said that the net result of energy price declines was very good for Dow Chemical, because it is a far greater user of energy than it is a producer of energy. That’s something that hasn’t really been factored in yet and Dow Chemical reports its earnings next week.
As with many companies, the earnings may be of interest, but it’s the future guidance that may hold the key.
Hopefully this morning’s ECB announcement will bring some happy news to the US markets as that would be a good way to bring a shortened trading week to its end.
With a few positions set to expire tomorrow, I’d like to see them positioned to either be assigned or rolled over and a couple of good days in succession would really help.
So, Mario, we wanted to know “What’s it going to be?” and this time you didn’t disappoint, but what have you done for us lately?