Scoreboard: Eagle-eyed Draghi

Mario Draghi’s comments that the ECB is ready to act on Europe’s falling inflation took the markets by storm.

US markets were closed for the Memorial Day holiday and in the UK markets were closed for a bank holiday -- but there was plenty of action out of Europe. Much of it was sparked by comments from the European Central Bank’s President Mario Draghi, who suggested that the bank may take action next week to deal with what it sees as growing risks to the outlook.

“We need to be particularly watchful for … the potential for a negative spiral to take hold between low inflation, falling inflation expectations and credit, in particular in stressed countries,” Draghi said. 

At the moment, the ECB is talking about conventional policy action -- cutting rates, charging banks to deposit money at the ECB etc.

At a minimum, analysts expect the ECB to cut rates next, although Draghi didn’t rule out a QE program.

Otherwise things seem to have calmed down somewhat in both the Ukraine and through Europe. As it turns out, euro-sceptic parties didn’t do nearly as well as some claimed, taking 17 per cent of the legislature -- mainstream parties took 77 per cent. And that’s with less than half of those eligible actually voting.

Equities saw a strong bid in Europe and the Dax even managed to hit a new record with a 1.3 per cent gain -- just shy of the 10,000 mark. Elsewhere, the CaC rose 0.8 per cent, while Italy’s MIB index was 3.6 per cent higher, led by a surge in banking stocks.

Forex markets pushed the euro a little higher, about 20 pips to 1.3620 (54 at the high), while the British pound traded on a 20 pips range hitting 1.6853 at the high before settling little changed at 1.6843. The Australian dollar didn’t do much in the end -- pushing a little higher to be at 0.9243.

Rates eased again, the German 10-year bond off just over 1 bps to 1.4 per cent. Italy’s 10-year bond rallied with equities, the yield down 12 bps to 3.03 per cent. For Australia, futures were flat with the 3s and the 10s at 97.2 and 96.265 respectively.

Commodities saw mixed and quite unremarkable price action. Copper was most active with a 0.6 per cent rise; elsewhere though moves were small. So gold was up less than a dollar at $1292 and silver was 0.2 per cent higher. In the crude space, Brent and WTI were off 0.2 per cent ($110.3 and 104.2 respectively).

Elsewhere, data was almost non-existent. The only report came from Germany and was lower tier -- consumer confidence from GFK showing steady confidence in June.

Markets today. The SPI suggests it’ll be a fairly quiet, only rising about 7 points. In terms of the data, there’s not much for our region. There are plenty of US data tonight though. Durable goods orders, house prices, consumer confidence and two manufacturing surveys from the Richmond and Dallas Federal Reserve Banks.

Have a great day.

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