Markets signal the end of the stimulus era

Equity and commodity market reaction to the latest ECB stimulus package is signalling two things. The first is a recognition that the marginal impact of monetary stimulus is now limited. The second is that for markets, the most significant aspect of last night’s announcement was the indication that no more easing was planned.  There is a sense that markets and economies are returning to basics. From here the focus will be on whether underlying economic conditions and government policy can ultimately sustain the unwinding of central bank stimulus.

While international stock markets had a volatile session last night, the US market ended up finishing largely unchanged. The Australian market looks likely to follow suit with a relatively steady end to the week.

One key dynamic today may be whether yesterday’s trends follow through. This saw buying of yield stocks like Telstra and the banks offsetting nervousness about shares with risk to a stronger Aussie Dollar.  Currency exposed stocks like Brambles, CSL and QBE were the biggest negative influence on the ASX 200 yesterday. The Aussie Dollar has baulked at technical resistance around .753. A clear break though this level will be seen as a negative for stocks like CSL which until recently were being supported by a weaker currency.

Markets will have a watching brief on the release of China’s February economic data over the weekend. However, traders will be conscious of the potentially distorting influence of the Lunar New Year holiday on the February data set.