Daily market commentary: ECB further cuts 10 basis points in interest rates


Daily Market News

ActivTrades’ Market Analysts have prepared for LeapRate their daily commentary on traditional markets for September 12, 2019. See details below:


Updated: ECB STIMULUS

Today’s announcement of a further cut of 10 basis points in interest rates and the launch of a new asset purchase program mean the ECB is taking very seriously the slowdown in economic growth in the Eurozone, as well as the wider threat posed by the ongoing trade tensions between the US and China. These concerns are to some extent also shared by the SNB, and lower interest rates in the Eurozone represent downside risk for the Euro, therefore it is unlikely that the Swiss authorities will look into tightening at this stage because an increase in monetary policy discrepancy would be likely to have a negative effect on swiss exports to the Eurozone and on the Swiss economy, too.

The ECB announcement of a 10 basis point rate cut and the launching of a new, open-ended, bond purchase program appears to initially have shocked the markets, leading to a pronounced drop for the Euro; more due to the new cycle of QE than to the rate cut, which was widely expected. However, the initial shock was replaced by a more rational reaction, as the ECB’s determination to do the necessary to stimulate growth and bring the Eurozone inflation close to the 2% target, reassured investors, supporting the recovery of the single currency. The positive sentiment was reinforced by good news on the trade front, as reports of an eminent deal between the Us and China started to surface, giving a boost to risk related assets.

Ricardo Evangelista – Senior Analyst, ActivTrades

FOREX

As the China-US trade conflict appears to be moving into a less volatile stage, the markets’ mood has turned more risk-on, impacting traditional safe-haven assets. The Yen in particular, is on a losing streak, experiencing its 4th consecutive day of losses against the US Dollar. Investors are feeling encouraged by the latest developments, as China exempted a number of US goods from tariffs and President Trump reciprocated by delaying by 2 weeks tariff hikes on Chinese imports. These are symbolic gestures, rather than substantial developments within the context of the ongoing commercial conflict, between the 2 economic superpowers; but, at least for now, sufficient to lift the mood in the markets.

Ricardo Evangelista – Senior Analyst, ActivTrades

OIL

Oil collapsed yesterday, despite inventories figures released by EIA showing a decline in stocks of almost 7 million of barrel. This morning, in the early trading, prices are trying to rebound, helped by some expectations for a further improvement in the relation between Washington and Beijing that could be supportive for oil. WTI is playing on the key level of $56, waiting for a new directionality.

However, it is clear that investors are now waiting for the ECB decision: Mario Draghi in his final meeting is expected to offer new stimulus to the markets and even lower rates, a mix of elements that could be appreciated by traders. Of course, if expectations are not met, we would see the reaction on the markets, with investors ready to recalibrate their positions.

Carlo Alberto De Casa – Chief analyst, ActivTrades

EUROPEAN SHARES

It is D-Day for European stock traders and most benchmarks are already trading higher ahead of the highly anticipated ECB meeting, during which Mario Draghi is widely expected to boost market sentiment by proceeding with a rate cut and detailing a new set of measures to sustain the euro zone economy. But high expectations also mean high chances of disappointment and many investors still don’t believe Draghi will take any steps in his last meeting as ECB’s Chairman. This could potentially lead to volatility spike and significant price action on EUR markets.

In the meantime, investor appetite for “riskier assets” has already increased overnight, after President Trump provided China with a goodwill gesture by delaying the next round of tariff over 250Bln USD of Chinese goods, from the 1st of October to the 15th. China welcomed this move from Washington and is now said to be considering US farm imports, including purchase of Soybean and Pork. These goodwill gestures from both sides are being welcomed by investors as they confirm the de-escalation of the dispute, however, they do not represent a significant improvement. The two blocs are still currently having high-level discussions towardas a final trade deal and further developments will come soon.

Pierre Veyret– Technical analyst, ActivTrades

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Daily market commentary: ECB further cuts 10 basis points in interest rates

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