Dovish ECB comments fail to bolster markets

Friday, April 04, 2014

Global equity markets slipped lower on Thursday as investors were less than impressed by Mario Draghi’s comments. Despite eurozone PMI numbers coming in broadly in line with expectations, trading was hesitant ahead of the ECB press conference. As expected, repo rates were left unchanged at 0.25% which saw the euro briefly rally above 1.3800 before swinging back down towards 1.3700 on dovish comments from the ECB president. Again, the threat of prolonged stagnation was highlighted and hints of further QE were given if the inflation outlook didn’t progress as the central bank had hoped. The reassuring words weren’t enough to assuage investors who had hoped for more action, prompting a sell-off in European equity markets which subsequently carried over to the US session which drifted lower as initial weekly jobless claims posted a larger than expected increase of 326K.

The USD strengthened further against the JPY yesterday, despite the slight pullback in risk assets as traders positioned themselves ahead of today’s non-farm payrolls. Investors have continued to pull out of the yen as confidence improves but struggled to move above resistance around 104.00 yesterday, however, buying levels remain firm on dips towards 103.80. Trading activity this morning has since seen support around this level reaffirmed ahead of unemployment and non-farm payrolls data later this afternoon.

Spot gold prices remain on track for a third weekly decline as market participants expect bullish jobs numbers this month. Market participants are hoping for further improvements in the labour market, with the median forecast of 200K additional positions created in March and an expected decline in the unemployment rate from 6.7% to 6.6%. Any positive surprises would offer support to the Fed’s plan on withdrawing stimulus as the optimistic outlook underpins spot prices below $1,290/oz this morning. Prices have declined 7.6% since their mid-March peak of $1,392.33/oz.

Wide swings in the EUR on Draghi's dovish comments

EUR Curncy Euro Spot 5 Days 15 2014 04 04 07 26 03

Initial jobless claims post a surprise rise

INJCJC Index US Initial Jobless 2014 04 04 07 27 11 

JPY finding steady support against the dollar towards 103.80

JPY Curncy Japanese Yen Spot 5 2014 04 04 07 34 19

Events for today

0245

CN

Mar

Services PMI

1100

DE

Feb

Industrial Orders

1330

US

Mar

NF Payrolls

1330

US

Mar

Unemployment

OE:

May  Cocoa (NYBOT)

All times UK Local Time

More from: Kash Kamal