Today’s trading is sandwiched between the Reserve Bank of NZ’s surprise rate cut this morning and the European Central Bank’s much anticipated announcement this evening. Despite strong leads from overnight share and commodity trading, investor enthusiasm may be subdued by the potential for further ECB disappointment.
A weaker NZD is weighing on the AUD, as currency traders contemplate the impact of deflationary pressures on central banker thinking. Given Australia’s recently confirmed higher growth rate, a weaker AUD could bring international support for local shares. This is an important development, as the arm wrestle in the Australia 200 index over the last two weeks pitted buying by local cash investors against international and institutional “top down” sellers. If the international selling is dissuaded by the currency, Australian shares may outperform futures market expectations of a gain of 11 points.
The ECB is tonight widely expected to increase the amount of securities it buys from the market each month, as well as moving interest rates further into negative territory. However, there are also market discussions around the idea that the ECB may be pushing on a piece of string, and that any stimulatory impacts of negative rates is overwhelmed by the signalling effect that Europe is in crisis. Bond markets are under pressure in the lead up, suggesting a recalibration of expectations and further stock supporting increases in risk appetites.