Let the Central Bank Games Begin

Published by Filipe R. Costa on Thu, 06/09/2012 - 11:55
Draghi

Daily Market Commentary for September 6: All ears are aggressively tuned to Draghi’s frequency. At 13.30 UK time, the ECB will hold a press conference that may be one of the most important in the bank’s history as investors expect important announcements coming from it.

Investors are expecting the ECB to announce a bond-buying programme in order to fix the broken debt markets that are currently pricing a possible euro breakup. Leaks over the last few days, led to high expectations and helped the Euro that was priced just above 1.2100 after the last ECB meeting on August 2 and is now trading around 1.2620, almost 500 pips above.

ECB policy makers and EU leaders have been giving the idea the ECB will step in and announce the desired bond-buying program, but I still have many doubts on how far they will go today. Many investors and traders will scrutinise every Draghi’s word and will certainly want to carefully analyse them as they are waiting for details. Will the ECB announce a yield or spread target for its purchases to be enacted? Will such cap be equal for every country? Those are questions that will most certainly stay unanswered as I really doubt the ECB is in a position to give much details. The ECB needs to do something but it will mostly try to show the bazooka rather than use it.

For now there is some optimism in markets, especially in European ones. Gold has been rising too as expectations of monetary easing continue to mount.

Although all eyes will be centred around the ECB press conference, the US ADP report deserves to be carefully watched since it can give clues for tomorrow’s NFP. At this point Gold can fluctuate with any change in investors’ perceptions about QE3 and if the ADP is above expectations, Gold can suffer.

It is now time to carefully watch your positions since volatility can pick up during the ECB press conference.

Market Last price Close Price % 5-Day % YTD %
CAC 40 05/09/2012 3405.79 0.2 -0.24 7.78
Crude oil (Light Sweet) Composite 05/09/2012 9576 0.4 0.65 -3.27
DAX (Xetra) 05/09/2012 6964.69 0.46 -0.65 18.08
Dow Jones Industrial Average 05/09/2012 13047.5 0.09 -0.42 6.79
EUR/GBP - £ per Euro 05/09/2012 0.7923 0.28 0.08 -4.91
EUR/USD - US$ per Euro 05/09/2012 1.26 0.53 0.56 -2.73
FTSE 100 05/09/2012 5657.86 -0.25 -1.49 1.54
FTSE MIB 05/09/2012 15128 -0.62 1.23 0.25
GBP/USD - US $ per £ 05/09/2012 1.5903 0.24 0.47 2.4
Gold (LBM) $ 05/09/2012 169440 0.08 2.31 8.14
IBEX 35 05/09/2012 7494 0.08 2.57 -12.52
Nasdaq 100 Index 05/09/2012 2766.95 -0.18 -0.57 21.47
Nikkei 225 05/09/2012 8679.75 -1.09 -4.3 2.66
S&P 500 05/09/2012 1403.44 -0.11 -0.42 11.6