- The ECB announced that fresh stimulus was on its way but equities fell (S&P500 -0.6%, Euro Stoxx -0.6%) while fixed income yields and the euro jumped; markets arguably craving an even more dovish policy signal.
- US 10yr yields rose 4bp to 2.084%, stronger US durable goods orders data and a position squeeze after the ECB did not leapfrog dovish expectations the main drivers. Bond yields briefly touched fresh all time lows after the ECB policy announcement (-0.422%) but finished the session +1.5bp to 0.363%.
- Brent crude oil firmed slightly, +0.3% to 56.18/bbl tensions with Iran remain elevated. Gold fell $9.65 to $1416.18.
- US durable goods orders and shipments topped estimates after several disappointing months. Headline durable goods orders rose 2.0% (est 0.7%), the detail was encouraging too; non-defence capital goods shipments ex-aircraft rose 1.9% (est 0.2%) while shipments advanced 0.6%.
EUR fell to a two-year low of 1.1101 in the immediate wake of the ECB policy announcement, the package likely to include rate cuts and additional asset purchases, but later recovered to as high as 1.1185 during President Draghi’s press conference, even as he said a “significant degree” of monetary stimulus is needed and that the outlook is “getting worse and worse.” EUR/USD settled at 1.1140. AUD continued to slip through offshore hours, building on an earlier decline following RBA Governor Lowe’s speech. AUD fell to an 11-day low of 0.6932 overnight. NZD underperformed AUD, falling to 0.6650.
Next week’s FOMC rate decision carries big potential for volatility across a number of key markets. A 25 basis point cut appears to be baked-in at this point; but what else might the Fed point to for future policy action?
It’s been a busy morning across the FX space as the European Central Bank rate decision drove volatility through FX markets. While the bank’s statement opened the door for future dovish action, particularly towards rate cuts and possibly even more QE. This brought on a bit of Euro weakness but that was mostly erased after the press conference began and Mario Draghi mentioned that the bank didn’t even discuss the possibility of a rate cut today. That brought on a quick bout Euro-strength that drove EUR/USD up to find resistance at prior support. After the fact, however, ‘sources’ have alluded to the fact that the ECB is set-and-ready for a rate cut in September, which has helped to bring in the Euro-weakness that the bank appeared to want from this morning’s rate decision.
AUD/USD Falls Below the 0.7000 Big Figure AUDUSD bears have punched this thing back below the 0.7000 level. At this point, the door may soon re-open for bearish plays. A bounce back to resistance at prior short-term support, taken from around the .6975 level, could allow for the establishment of that play.
Event Risk Data Today
US – GDP Market forecast average: 1.8%, the Q1 result was boosted by a build-up of inventories. Come Q2, this situation looks set to reverse. Outside of inventories, domestic demand is set to strengthen, thanks to a near doubling of consumption growth, and as government spending continues to provide support. Business investment should also grow, but likely at a softer pace than in Q1.