Mario Draghi halts selling momentum despite reduced market "cred"
Markets have become more cautious about Mr. Draghi’s now familiar tactic of hinting t at the likelihood of further easing in the lead up to an ECB meeting. This follows disappointment that the ECB did only the minimum expected of it in December. Despite these misgivings, lower oil and commodity prices have increased the probability of further ECB stimulus. Investors may now be a little more cautious about selling equities before the next ECB meeting unless prices rally to improve the balance of risk.
The rally in oil will also help short term market sentiment. Oil bounced neatly off a key chart level on Wednesday and last night’s buying came despite news of another large build in US inventories.
Increased Iranian exports could make the next few months a crunch time for oil markets. However, the risks are not all one way. It’s not impossible that Iranian sales could be lower than expected. There’s also potential for US production to be cut further. Short sellers appear to be covering positions and a price bounce into the low to mid $30’s might better reflect two way risks for oil in the short term.
Last week’s jump in US jobless claims to 293,000 means that markets could become more sensitive to this number in coming weeks. Below 300,000, jobless claims are not a major concern. However, the trend has been rising in recent weeks. Given job losses in the oil industry and softening conditions in manufacturing, any further increase in jobless claims trend will start to create concerns about the durability of strong US jobs growth.
Frequently Asked Questions about this Article…
Investors have become cautious about Mario Draghi's tactics because he often hints at further easing before ECB meetings, but the ECB has sometimes only met the minimum expectations, leading to disappointment.
Lower oil and commodity prices increase the probability of further ECB stimulus as they can impact inflation and economic growth, prompting the ECB to consider additional measures to support the economy.
The rally in oil prices can boost short-term market sentiment as it indicates a potential stabilization in the market, despite challenges like increased US inventories and Iranian exports.
Increased Iranian exports could pressure oil prices, but there are opportunities if Iranian sales are lower than expected or if US production cuts further, creating a balanced risk scenario.
Rising US jobless claims could make markets more sensitive, especially if they trend above 300,000, as this might indicate weakening job growth and economic conditions.
Factors like oil price rallies and ECB stimulus expectations could influence the balance of risk for equities, making investors cautious about selling unless prices improve.
Short sellers might be covering positions due to the potential for a price bounce into the low to mid $30s, reflecting two-way risks and a more balanced outlook for oil prices.
Job losses in the oil industry and softening conditions in manufacturing are contributing to the rising trend in US jobless claims, raising concerns about the strength of US jobs growth.
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