Market hopes stay with ECB

DAILY MARKET REVIEWS
by Arne Treholt Vice-President of Business Development and Investments

The US Federal Reserve stopped short of offering new monetary stimulus when it met yesterday. In a carefully worded statement, FED left the door open for further bond buying to help a struggling US-economy losing its momentum. Markets reacted mutely. The US exchanges ended flat after initially sending Dow and Nasdaq down on the FED’s inaction. Asia eased 0,2 percent in morning trade. While surprisingly, strong Australian retail and trade balances’ figures helped strengthen both stocks and the Aussie dollar. The Japanese Yen is falling to USD/JPY 78,51.

FED’s inability to offer new stimulus, left the burden of markets hopes on the shoulders of the European Central Bank, ECB. The USD reached a one-week high in Asia with EURO under new pressure. EURO/USD trades at 1.2247. The dollar index saw its highest level since July 26th, keeping the bar low for additional monetary easing when the FED meets in September. The spot light today on ECB President, Mario Draghi, who last week created strong expectations, stating to do whatever it takes to protect the Euro.

The most likely outcome of the ECB meeting today is new statement declaring ECB’s willingness to use all available tools if deemed necessary. This will stop short of any concrete action, and most probably mean that ECB will postpone any concerted actions to purchase sovereign debt from Spain and Italy until September. Such steps are deemed necessary to push down the borrowing costs for these two most exposed Euro zone economies. A new strongly worded statement will, however, not be regarded as satisfactory for markets being optimistic for concrete actions.

Such inaction also from the ECB, shall surely send stock markets down and put a striving Euro under renewed downward pressure. Oil prices have picked up a dollar a barrel since yesterday with Brent crude trading at 105,90. Precious metal traders are sending gold (1602) and silver (26,45) down disappointed by FED’s decision to postpone any concrete action to stimulate the economy.

Copyright: United World Capital