Another tentative session for global risk assets today as equity benchmarks across Europe traded lower throughout the session as pressure on eurozone policymakers intensified after the ECB auction fell short of expectations. The central bank had hoped to inject as much as €317bn of cheap four year loans into the region to offer additional credit liquidity to small business and market participants polled by Bloomberg had anticipated lenders would bid for as much as €170bn. However, only €129.8bn of the Targeted Longer-Term Refinancing Option (TLTRO) was sold in what was the second auction by the central bank and this lacklustre uptake on seemingly weak demand drivers could prompt policymakers to take further action in the coming months. Speculation of a move towards full-blown QE has been gaining traction in recent weeks with an increasing number of market participants hopeful that the printing presses will be turned on soon and the teetering eurozone economy will be propped up by the central bank buying sovereign debt.
After strengthening against the dollar for the past three session the euro attempted to converge on resistance towards 1.25, however, early gains were short lived as details of the ECB’s auction emerged, driving the single currency lower as it retraced some of yesterday’s gains and traded back below 1.2390. With the ECB under increasing pressure to provide further liquidity the argument for the purchase of sovereign bonds we could see increased volatility in the euro against the USD.
At the time of writing US equity markets were trading higher as benchmarks recovered some of yesterday’s steep losses after a series of positive economic data release. November retail sales surprised on the upside with the advanced reading increasing by 0.7% m/m against expectations of a 0.4% m/m increase. Import prices gave further traction to the bullish US outlook as priced dropped 1.5% m/m in November largely thanks to a stronger dollar against almost all major peers. Capping off the major US releases of the day was initial weekly jobless claims which came in broadly as expected at 294K new claims during the week ending Dec 6th against expectations of 297K new claims for the same period. Tomorrow sees the release of Chinese and eurozone industrial production data while over in the US investors will be anticipating PPI final demand and the University of Michigan confidence index for further insight into state of the global economy.