Markets whipsaw over ECB announcement; Dax craters and EURO spikes

Summary:

• Dax craters, Euro spikes after ECB meeting

• S&P500 pulls back from all-time high

• EURUSD bounces from 2-year low 

• Tesla tumbles after earnings update

The ECB meeting brought no change in monetary policy and only vague promises related to September. While the ECB is likely to act amid weakening economic outlook, this is certainly below expectations that ballooned over the past few days. 

There was a see-saw market reaction to the latest policy announcement from the ECB with the initial moves reversing as President Draghi conducted his press conference. There was some expectation that the bank would cut the overnight deposit rate, but the Governing Council have seemingly decided to bide their time with all interest rates kept unchanged. 

There’s been some fairly sharp selling seen in US benchmarks this afternoon as a large swoon in European indices has soured sentiment on the other side of the Atlantic. The German Dax has reacted angrily to the latest ECB announcements with the market tumbling 300 points in less than 2 hours from its highest level in 3 weeks. Today’s break higher for the S&P500 could prove to be a false one. Negative divergence seen on MACD but needs daily reversal candle to confirm (Bearish engulfing on close at 2996 or lower).

The decision was accompanied by a short statement that hinted at the resumption of Quantitative Easing and this caused an initial drop in bond yields and the Euro while stocks rallied. In fact the EURUSD fell to its lowest level in 2 years and was on the brink of trading below the $1.11 handle. The EURUSD is forming a potential hammer on D1 after just dipping below the recent lows to trade at the lowest level since May 2017.

One individual stock that’s having a particularly big day is tesla, and unfortunately it’s a big down day. The electric car maker reported its latest trading update after the bell last night and announced a loss of $408M, or $2.31 per share. This compares favourably to the $718M loss, $4.22 a share in the same period a year ago, but that should hardly be seen as a big success. Sales rose to $6.3B from $4B a year ago. Consensus forecasts according to FactSet analysts were for a loss of $0.35 per share and sales of $6.5B. The stock is lower by 14% at the time of writing.