Friday 23rd January: European Open Briefing

Global Markets:

• Asian stock markets: Nikkei up 0.90 %, Shanghai Composite rose 0.70 %, Hang Seng gained 1 %, ASX rallied 1.50 %
• Commodities: Gold at $1294 (-0.50 %), Silver at $18.29 (-0.40 %), WTI Oil at $47.24 (+2.00 %), Brent Oil at $49.64 (+1.50 %)
• Rates: US 10 year yield at 1.867, UK 10 year yield at 1.542, German 10 year yield at 0.452

News & Data:

• Japan Manufacturing PMI 52.1, Expected: 52.0
• China HSBC Manufacturing PMI 49.8, Expected: 49.6, Previous: 49.6
• Japan EconMin Amari: Praise ECB for taking steps to support economy and avoid deflation
• Amari: Appropriate for BOJ to change its forecast in response to change in economic environment
• Amari: Expects spring wage negotiations to lead to rise in real wagers
• Aussie Below 80 Cents as Canada, ECB Feed RBA Rate-Cut Bets (BBG)
• Oil Jumps as Saudi King’s Death Spurs Speculation Over Policy (BBG)
• China’s Stocks Head for Longest Weekly Winning Streak Since 2006 (BBG)
• Draghi Commits ECB to Trillion-Euro Asset-Purchase Plan to Fight Deflation (BBG)
• Euro Set for 1 1/2-Year Low Against Yen as Draghi Outmuscles BOJ (BBG)
• Worldwide Bond Market Rally Sputters After ECB Boosts Stimulus (BBG)

ECB Highlights:

• Draghi: Launch of expanded asset purchase programme, which includes existing purchase programmes for asset-backed securities & covered bonds
• Draghi: Combined monthly purchases will be €60 billion, to be carried out at least until end-Sept 2016
• Draghi: Purchases until sustained adjustment in inflation path consistent with aim of inflation close to, but below 2% over the medium term
• Draghi: Purchases start in March 2015 and include investment-grade euro area govt, agency and EU institution securities in sec market

Markets Update:

The ECB delivered this time. The central bank announced a €60 billion/per month QE programme that will start in March and not finish until September 2016. While the market reaction wasn’t very clear during the press conference, with EUR/USD swinging from 1.15 to 1.16 and back, the price action was very clear after Draghi finished. Selling resumed and the pair finished the day around 1.1370, down almost 300 pips from the day’s high. It reached a fresh low in Asia, at 1.1313. There will still be high selling interest at any larger rally and 1.15 is now seen as pivotal short-term resistance level.

Meanwhile, GBP/USD broke below the 1.50 level, dragged lower by the Euro. The outlook is bearish as well and we are likely heading for a test of the 2013 low of 1.4812 soon. AUD/USD fell sub-0.80 as speculation on a possible RBA rate cut increased. The Canadian Dollar didn’t benefit much from the rally in Oil, with the USD/CAD now above 1.24.

Looking ahead, we have a series of PMI data out of the Euro Zone countries, followed by UK retail sales. The main event of the day will be Canadian inflation data at 13:30.

Upcoming Events:

• 08:00 GMT – French Manufacturing PMI (48.1)
• 08:00 GMT – French Services PMI (50.7)
• 08:30 GMT – German Manufacturing PMI (51.7)
• 08:30 GMT – German Services PMI (52.5)
• 09:00 GMT – Euro Zone Manufacturing PMI (51.0)
• 09:00 GMT – Euro Zone Services PMI (52.0)
• 09:30 GMT – UK Retail Sales (-0.6 % m/m, 3.0 % y/y)
• 09:30 GMT – UK Core Retail Sales (-0.7 % m/m, 3.3 % y/y)
• 13:30 GMT – Canadian CPI (-1.0 % m/m, 2.0 % y/y)
• 13:30 GMT – Canadian Core CPI (-0.3 % m/m, 2.0 % y/y)
• 13:30 GMT – Canadian Retail Sales (0.1 % m/m)
• 13:30 GMT – Canadian Core Retail Sales (0.5 % m/m)
• 15:00 GMT – US Existing Home Sales (2.4 %, 5.06mln)

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