Thursday, December 3, 2015

Historic ECB Rate Decision and President Draghi Press Conference 12/3/15 Market Reaction in Real-Time

Today is the historic day when ECB Presdient Drghi is expected to fire a huge QE (quantitative easing) money bazooka. The central bankers are the market.

At 3 AM EST (8 AM London), European indexes begin trading flat to higher. DAX +0.5%. CAC +0.6%. FTSE +0.1%. S&P futures are up +5. Dow +25. Nasdaq +13. Euro 1.0575. Dollar/yen 123.45. Pound 1.4928. DB says the pound will keep falling and print a 30-year low next year. Aussie dollar 0.7320. Dollar/yuan 6.3980.

WTIC oil 40.43. Brent oil 43.18. Natural gas 2.16. Gold 1052. Gold is lower after Yellen’s comments yesterday hinting that the rate hike is on tap. Silver 13.93. Copper 2.0290.

Treasury yields are; 2-year 0.94%, 5-year 1.64%, 10-year 2.19%, 30-year 2.92%. The US-German 2-year yield spread is a wide 137 basis points. German 2-year yield negative -0.43%. What have the central bankers done to markets? What future dangers have these sick Keynesian money printers created?

S&P +7. Dow +53. Nasdaq +19. Euro 1.0573. German bund 0.48%.

At 3:36 AM EST, S&P +8. Dow +60. Nasdaq +20. Euro 1.0580. Aussie dollar 0.7325. Markets are in a wait and watch mode since the massive ECB decision nears.

At 4:30 AM EST (9:30 AM London), markets are holding steady ahead of the ECB rate announcement in three hours and President Draghi press conference in four hours. S&P +7. Dow +50. Nasdaq +19. DAX and CAC are each up +0.5%. FTSE +0.1%.

The euro sinks to 1.0554 as traders expect dovish talk from Draghi the King of the Doves. Dollar/yen 123.47. The pound is 1.4918 moving towards a 1.48 handle. Aussie dollar 0.7325. USD 100.34. US 10-year yield 2.197%. German 10-year bund yield 0.481%.

At 4:54 AM EST (9:54 AM London; 10:54 AM Frankfurt), European indexes and US futures are strongly higher. DAX +0.9%. CAC +1%. FTSE +0.2%. S&P futures bounce to +12. Dow +90. Nasdaq +32. Euro 1.0559. Dollar/yen 123.47. Pound 1.4933.

Oil is ramping higher so energy stocks help lift the indexes. WTIC oil is up +1.6% to 40.60. Brent is up +2% to 43.40. Natty is steady at 2.16. Gold is down to 1049. Silver drops to 13.925. Copper 2.03.

US 10-year yield 2.195%. German bund 0.476%. US 2-year yield 0.942%. German 2-year yield is negative -0.45% with the US-German 2-year yield spread at 139 bips! The US-German 2-year yield spread was at 88 basis points only a couple months ago! The spread is widening with the US 2-year climbing due to the pending Federal Reserve rate hike while Germany is driven lower by the ECB’s ongoing and expanding QE program.

Dow futures are up +100. Draghi is shining his QE money bazooka and placing a large charge inside that will provide shock and awe in Europe and around the world; at least this is the expectation of traders and investors. Draghi promised a brand new shiny pony one month ago which crushed the euro from above 1.14 to 1.05 so he had better deliver the new pony this morning.

S&P +13. Dow +112. Nasdaq +35.

At 6:18 AM EST, S&P +12. Dow +94. Nasdaq +33. DAX +0.9%. CAC +1.2%. Euro 1.0557. Euro/yen 130.38. Dollar/yen 123.48. Pound 1.4928. USD 100.34.

WTIC oil 40.52. Brent oil 43.39. Natty 2.17. Gold 1051. Silver 13.91. Copper 2.0315.

US Treasury yields are; 2-year 0.94%, 5-year 1.65%, 10-year 2.20%, 30-year 2.92%. German bund 0.477%. Japan 10-year yield 0.321%.

The tension mounts as the important ECB announcement is only about one hour away. Of course Draghi’s press conference at 8:30 AM EST (2:30 PM Frankfurt) carries the most clout. Draghi’s words will move markets between 8:30 AM and 9:00 AM.

The ECB decision nears. Market participants expect Draghi to extend QE from the September 2016 end date into 2017 or perhaps take a page out of former Fed Chairman Bernanke’s playbook and announce ‘QE Infinity’. Draghi may also increase the amount of bond purchases and perhaps also spread the purchases out into different asset classes. Draghi may also squeeze one or more of the lending rates lower which will create increased discussions about negative rates in Europe. All of the above is on the table.

There are several analysts calling for euro parity (euro 1.00) by the end of the year. The euro was last at parity in December 2002. The table is set. The euro will react according to how dovish Draghi’s words are and the US dollar index will move inverse to the euro. Uber dovishness will send the euro lower; it depends on how big Draghi’s QE money bazooka is. European stocks and US futures will likely react violently. Bond yields will require monitoring. Traders munch on the last donut and plan the final restroom visit as the ECB decision draws near. The morning should become very active.

At 7:30 AM, S&P +11. Dow +80. Nasdaq +29. Euro 1.0546. Dollar/yen 123.45. Pound 1.4937. 

Markets react violently a couple minutes before the ECB announcement. The FT (Financial Times) says the ECB plans to leave rates unchanged. Jaws are dropping on trading floors. How could this be? The DAX, CAC and FTSE fall like rocks to the flat line turning negative on the session. S&P futures retreat to +7. Dow +49. Nasdaq +20. There is no confirmation to the FT release so traders are skeptical. The bond market is not moving on the news.

Euro 1.06. Euro/yen 130.77. Dollar/yen 123.39. Pound 1.4947. WTIC 40.53. Brent 43.31. Natty 2.15. Gold 1055. Silver 13.93. Copper 2.0335.

Treasury yields are; 2-year 0.94%, 5-year 1.65%, 10-year 2.20%, 30-year 2.92%.

At 7 :45 AM EST (12:45 PM London; 1:45 PM Frankfurt), the ECB decides to leave the benchmark rate unchanged at +0.05% but the deposit rate is cut 10 bips to -0.30%. The marginal rate is +0.3%. Most importantly, the ECB says, “Further measures will be announced.” This is a similar statement to June 2014 so Draghi likely plans to fire the big QE money bazooka at the press conference. So the real move in markets may not occur for another 45 minutes. Draghi may provide an increase in QE purchases and/or announce ‘QE Infinity’ with an unlimited deadline so more drama is to follow.

The FT makes a correction to its news release admitting to an error. That error likely created millions in profits and losses from traders acting on the news. The Financial Times has egg on its face.

Three minutes after the ECB announcement, S&P +4. Dow +24. Nasdaq +15. DAX +0.1%. CAC +0.3%. FTSE -0.2%. Euro 1.0636. Dollar/yen 123.40. Pound 1.4945. USD 99.89.

WTIC 40.51. Brent 43.33. Natty 2.15. Gold 1055. Silver 13.94. Copper 2.036.

At 7:50 AM, S&P +6. Dow +44. Nasdaq +20. DAX +0.1%. CAC +0.4%. FTSE -0.1%. Euro 1.0643. Euro/yen 131.32. Dollar/yen 123.42. Pound 1.4949. Mexican peso 16.5577. Canadian dollar 1.3351. Dollar/yuan 6.3980. USD 99.75.

The German 2-year yield is negative -0.41% and the US 2-year 0.94%. The German 10-year yield is 0.48% and the US 10-year 2.20%.

The euro is rocketing higher to 1.0691 and climbing ignoring the statement that “further measures” will be announced at the press conference. The German 2-year yield is negative -0.39%. Gold jumps 7 bucks to 1061. Silver is above 14 to 14.09. Copper 2.0420.

At 8:07 AM EST, the euro shoots above 1.07. Traders view the ECB decision as less dovish (more hawkish) than expected but the “further measures” are not yet announced. Traders play a waiting game to see if Draghi, King of the Doves, can bring the euro back down when he fires his QE money bazooka in a few minutes.

At 8:17 AM EST, euro 1.0686. S&P +4. Dow +30 Nasdaq +11. US 10-year yield 2.21%. German bund 0.50%. The DAX, CAC and FTSE trade marginally negative.

At 8:28 AM, S&P +5. Dow +28. Nasdaq +12. DAX -0.4%. CAC -0.2%. FTSE -0.2%. Euro 1.0662. Dollar/yen 123.36. Pound 1.4959. Gold 1057.

US Treasury yields are; 2-year 0.95%, 5-year 1.67%, 10-year 2.21%, 30-year 2.93%. German bund 0.494%.

At 8:30 AM, Jobless Claims are up 9K to 269K. Two minutes later, ECB President Draghi begins the press conference. S&P +7. Dow +46. Nasdaq +15. Euro 1.0648. Dollar/yen 123.27. Pound 1.4956.

WTIC oil 40.67. Brent oil 43.53. Natural gas 2.16. Gold 1054. Silver 13.985. Copper 2.041.

Draghi says the deposit rate is lowered by 10 basis points to -0.3% and the 0.05% benchmark and 0.30% marginal rates remain unchanged. He says the asset purchase program (QE) will be extended from an end date of September 2016 to March 2017; a six-month extension. In addition, Draghi says the end date will be “March 2017, or beyond if necessary, or until a sustained adjustment in the path of inflation occurs.” The ECB maintains the current QE purchase level at 60 billion euros ($65 billion). Traders will be happy with the end date of QE extending into 2017 but will be greatly disappointed that the amount of QE is not raised.

The euro is jumping higher because the QE monthly purchase amount does not increase. Draghi says, “We decided to reinvest principal payments as they mature for as long as necessary to create favorable liquidity conditions.” He further states, “We decided to include euro-denominated instruments across the euro area” in our purchases (buying regional government bonds and all levels of Federal, State and local bonds). Draghi proclaims, “The ECB plans to continue conducting finance operations for as long as necessary.” Euro 1.0776.

At 8:35 AM EST, euro 1.0801. US futures drop like a stone since traders expected more dovishness. Draghi has lost his touch since he has always exceeded expectations (on the dovish side) with his announcements until today. He did not live up to his King of the Doves moniker. S&P -4. Dow -47. Nasdaq -6.

DAX -1.8%. CAC -1.9%. FTSE -1%. MIB -0.8%. IBEX -1.1%. Euro 1.0788.

At 8:38 AM, European indexes are in collapse. DAX -2.6%. CAC -2.4%. FTSE -1%. MIB -1.5%. IBEX -1.6%. Euro 1.0792. Draghi says, “The ECB is ready to act with all tools if needed.” Draghi says he “expects a recovery to proceed further.” Draghi references recent ECB surveys that signal ongoing economic growth occurring in Q4.

DAX -2%. CAC -2.3%. FTSE -0.9%. Gold 1059.

Treasury yields are; 2-year 0.95%, 5-year 1.68%, 10-year 2.22%, 30-year 2.94%.

Draghi says 2015 growth in the euro zone should be up +1.5% versus the prior +1.4% estimate. He says GDP in 2016 will be at +1.7%. Draghi says, “Government spending will rise due to the refugees (the ongoing European migrant crisis).”

At 8:41 AM, euro 1.08. Draghi realizes that traders are disappointed that he did not increase the QE purchase amount. Draghi instead stresses that he extended the quantitative easing timeline from September 2016 to March 2017 and cut the deposit rate. The DAX prints an intraday reversal of over 4% a huge move for a major index now down -3%. S&P -6. Dow -70. Nasdaq -15. The euro is screaming higher to 1.0840. US 10-year yield 2.22%.

US futures and European stocks take the pipe. S&P -9. Dow -100. Nasdaq -18. DAX -3.6%. CAC -3.2%. FTSE -1.3%. Euro 1.0884. Dollar/yen 122.90. Pound 1.504. Draghi was supposed to provide the brand new pony he promised one month ago but instead he shows up with a donkey with a sunken back. Draghi loses a little bit of credibility getting the markets all lathered up over the last month with big gains in US and European stocks but he did not live up to the hype he created.

At 8:46 AM EST (2:46 PM Frankfurt), Draghi begins Q&A (question and answer). Draghi receives multiple questions about why he chose to not increase the QE purchase amount which obviously disappointed investors. Draghi tap dances.

DAX -3.4%. Draghi says, “Abundant liquidity will continue a long, long time.” Draghi says, “A large majority of ECB members were in favor of the package” but it was not a unanimous vote. Euro 1.0860. US 2-year yield 0.96% and 10-year yield 2.23%.

At 9 AM, Draghi proclaims, “The ECB can always adjust QE.” US futures and European indexes recover off the lows. S&P flat. Dow -25. Nasdaq +1. DAX -2.3%. CAC -2%. FTSE -0.7%. SMI -0.9%. Euro 1.0822. USD 98.69.

US Treasury yields are; 2-year 0.96%, 5-year 1.69%, 10-year 2.23%, 30-year 2.95%.

At 9:16 AM, US futures recover. S&P +3. Dow +9. Nasdaq +11. European indexes remain weak. DAX -2.3%. CAC -1.8%. FTSE -0.8%. Euro 1.0791. The majority of traders, especially those claiming euro parity will occur any day, are taken by surprise (the consensus expected more dovishness from Draghi and the euro to travel lower through 1.05, 1.04, 1.03, etc…, but instead Draghi does not increase the QE amount and the euro pops). Euro/yen 132.94. Dollar/yen 123.21. Pound is above 1.50 to 1.5031. Gold 1056. US 10-year yield 2.24%.

At 9:30 AM EST, US equities begin the day marginally higher. Draghi ends the press conference. Markets are allowing the smoke to clear from the ECB excitement. SPX gains 5 points, the Dow is up 50 points and the Nasdaq gains 19 points. VIX 16.03. Both stocks and volatility are higher so one of them is wrong.

US 2-year yield is 0.96%. 10-year yield 2.245%. German 10-year bund yield catapults higher to 0.63% (bunds selling off). Traders were buying bunds in anticipation that Draghi would buy more bunds (QE) but he did not and instead extended the timeline of the QE program. He also will broaden the bond-buying universe for the QE program. WTIC oil 40.55. Brent oil 43.50. Natural gas 2.137.

(the drama continues on the Keystone the Scribe sister site that explains the daily market machinations; Yellen is speaking in Washington, DC)

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