Draghi said Friday, Dec. 4 the bank is ready to expand its economic stimulus program if need be, just a day after the bank’s surprisingly modest steps to shore up the region’s economy sent shudders through global financial markets.
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Since then European stock markets have climbed steadily in anticipation of an early Christmas present from the central bank. Without them, he added, “inflation would likely have been negative this year”.
So people were basically expecting the Fed to be hawkish and the ECB to be quite dovish, so people have been shorting short dated government bonds in the U.S. market particular but also on the European bond market and now they have to buyback these short dated bonds and the way to finance that, unfortunately is to sell the long end of the yield curve. “However, his long-awaited early Christmas afternoon left many market participants disappointed like small kids who receive less and smaller presents thn expected on Christmas eve”, said Carsten Brzeski, chief economist for ING DiBa.
While traders, investors and analysts are blaming European Central Bank’s (ECB) communications over its intention, after the bank fell well short of market expectations, resulting in seventh biggest Euro move since its creation (3%), ECB vice-president Victor Constancio blamed market expectations.
The Fed held off from raising rates in September citing exogenous macro shocks, namely the Chinese stock market sell-off and falling crude prices, policymakers believe the domestic economy is stable enough to handle rates rise and data released throughout the week offers further support to this view. Dow members ExxonMobil and Chevron rose 0.6 per cent and 1.0 per cent.
“It (Other OTC: ITGL – news) ‘s solidified now: the Fed will raise rates” at its December meeting, Anderson said.
“Everyone was expecting Draghi to be the white knight for Europe once again and he hasn’t really shown up”, Aberdeen Asset Management investment manager Patrick O’Donnell said.
USA government bond yields declined after a brief rise.
“There was so much pain in the market yesterday that the willingness to act has been relatively subdued”, said Sebastien Galy of Deutsche Bank in NY. The yield on the 10-year Treasury note jumped to 2.33 percent, up sharply from 2.19 percent the day before.
Gold futures were up 2.3 per cent at $US1,085.60. The yen gained 0.5% to 122.61 per dollar, and was last trading at 122.55.
“Draghi caused a great deal of disappointment, dislocation and pain”, said Jeremy Stretch, head of currency strategy at CIBC World Markets.
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With that in mind, investors will be eyeing the all-important non-farm payrolls report for November which is due at 1330 GMT, along with the unemployment rate and trade balance figures for October. It also cut a key interest rate wto 0.3 per cent and agreed to buy more assets with the proceeds of existing bond purchases.
