ECB delivers stimulus package; Volatile moves across asset classes

Summary:

• ECB announce 10 bps depo cut and restart QE

• Initial dovish moves pare during press conference

• US markets sensitive to trade headlines

• Stock of the week: Apple

• Oil slides as OPEC+ meet

The euro as well as European indices and bonds have been highly volatile this afternoon after the ECB cut its deposit euro by 10bps, as expected. Other rates were left unchanged. At the same time, the ECB will relaunch its bond buying programme with monthly purchases of 20 billion EUR, which is less than expected (30 billion EUR). The new round of QE is going to start on November 1. Moreover, the ECB decided to introduce a so-called tiering system which could ease downward pressure on bank’s profitability.

The departing ECB’s President signalled a lot of downside risks to the economic outlook including protectionism and a downturn in manufacturing. The ECB also revised down its projections to both growth and inflation with inflation seen at 1.5% in 2021, below the ECB’s target. Draghi also said that the details regarding a two-tiered system aimed at easing downward pressure on banks’ profitability to be released right after the press conference. As usual, he also urged governments with fiscal space to act in a timely manner.

It’s been a good day for positive news as far as stock investors are concerned with with positive developments on the US-China trade front and the announcement of a significant stimulus package from the ECB causing a flurry of buying activity. However, the gains have been pared back somewhat in the past hour or so and the sharp drop from 6-week highs seen in the Dax will stir some memories of the declines that ensued after the July ECB meeting. Those reminiscing about the move seen back in the summer will be watching the price action closely for the rest of the day with a red close potentially marking an interim peak for equities after what has been an impressive couple of weeks.

Our latest stock of the week is Apple, and the analysis can be read in full here. 

There was a sharp drop lower in the price of crude yesterday afternoon, as 4th consecutive weekly decline in US inventories was overshadowed by reports that the US may be set to ease sanctions on Iran. The resignation of White House security advisor and Iranian hawk John Bolton has led to speculation that the US may be about to soften their stance against Iran and therefore reduce the risk of a significant supply shock to the energy markets.The Oil price hit its highest level in 6 weeks on Tuesday as the change in Saudi energy minister raised hopes of a stricter level of compliance in terms of output cuts amongst OPEC+ members. The group are meeting in Abu Dhabi to evaluate their current stance, but reports of improved compliance which would mean a further reduction in output of around 400k barrels per day are being overlooked in the near-term by the prospect of a softer stance on Iran. Oil has slid further this afternoon and trades back below the $60 mark at the time of writing.