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Market Update: ECB Announces Bond Buying Program

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Market Levels

• US: Dow Futures: 17567.00 (0.43%), S&P 500 Futures: 2035.25 (0.43%), NASDAQ Futures: 4195.75 (0.31%)
• Europe: CAC: 4498.53 (0.31%), DAX: 10300.01 (0.05%), FTSE: 6762.72 (0.54%).
• Metals: Gold: 1288.30 (-0.42%), Silver: 18.215 (0.12%), Copper: 2.587 (-0.96%)
• Energy: Crude Oil: 48.60 (1.80%), Natural Gas: 2.905 (-2.32%)
Commodities: Corn: 3.902 (0.58%), Soya Bean: 9.910 (0.76%), Wheat: 5.417 (0.93%)
• Currency: EUR/USD: 1.1633 (0.39%), GBP/USD: 1.5193 (0.40%), USD/JPY: 117.6840 (-0.10%)
• 10-year US Treasury: 1.9199% (0.071), German 10-Year Yield: 0.561% (0.041), Japanese 10-Year Yield: 0.321% (0.005)

 

Financial and Economic News Update

Global equity markets trading higher after ECB announces $70 billion a month bond buying: Stock markets around the globe are trading higher after the European Central Bank announced a $70 billion a month private and public bond buying program. On the data front, U.S. initial jobless claims dropped to 307,000 last week. Analysts were expecting jobless claims to decline to 300,000 last week. Before the opening bell, Verizon Communications Inc. (NYSE:VZ) posted a heavy fourth quarter loss on pension costs, though revenue was slightly above analysts’ projections, on strength in the tablets subscribers category.

Oil trading higher as ECB decides to keep key interest rate unchanged: Brent crude edged above $50 a barrel after the European Central Bank kept its benchmark interest rate unchanged on Thursday. The central bank left its main refinancing rate at 0.05 percent, while the rate on marginal lending was kept at 0.30 percent. Crude oil prices have already lost more than 50 percent since June last year due to massive oversupply and a drop in global demand.

Gold prices dip: Gold fell below the $1300-mark, hurt by strength in Asian equities that led to a bout of profit-taking in the safe-haven metal. Expectations are high ahead of any ECB quantitative easing. Technical analysts think that a sizeable bond-buying program could send the metal to $1320, which is its immediate resistance. The nearest support for any decline would come in at $1250.

 

Bond Market News

Treasuries decline amid concern that QE will fall short: Treasury 10-year bonds dropped on concerns that the European Central Bank will disappoint investors and deliver a smaller than expected quantitative-easing program. Analysts expect the ECB to announce a plan to buy around 50 billion euros ($58 billion) of government securities per month. Anything short of that figure will make the market jittery. Some investors are bracing for that eventuality, and have decided to get out.

Bank of Canada announces shock interest rate cut: The Bank of Canada became the first central bank in the Group of Seven nations to cut interest rates in response to plunging oil prices. The bank slashed its rate on overnight loans by a quarter of a percent to 0.75 percent amid growing risk of deflation, after crude oil prices more than halved.

Europe issues more junk bonds than the U.S.: The growth in junk bonds in Europe and the Middle East outpaced that of the US in the previous two years, according to a report by ratings agency, Moody’s. The report said that relatively stable market conditions and a tightening of bank lending led to more companies turning to the bond markets to raise funds. Moody’s expects the trend to continue in 2015, but also warned that macro headwinds could increase market volatility.

Bond investors ignore Chinese property companies: International bond investors have become increasingly cautious of Chinese property companies due to rising corporate governance issues. Bankers said that a number of high profile mainland property companies have postponed their debt-raising plans, or have been looking elsewhere for their financing needs, after the sector was hit by bond and loan defaults of Hong Kong listed developer, Kaisa.

Ryanair plans to return to the bond market: The Irish low-cost airline will likely return to the bond market within the next 12 to 18 months, following its well-received bond debut in June last year, according to a Reuters report. Ryanair managed to raise 850 million euros ($987 million) in its first bond issue, after gaining an investment grade rating. The carrier recorded a 20 percent rise in passenger traffic for December, pushing its shares to life-time highs.

ANZ’s yuan-denominated bond could pave the way for other Australian issues: Melbourne-based Australia & New Zealand Banking Group Limited raised close to 2.5 billion yuan ($400 million) on Wednesday in the first-ever sale of Basel III-compliant Dim Sum bond by a non-Chinese bank. Post the issue, analysts now feel that more and more Australian banks will look to tap the Tier-2 market to borrow funds in the Chinese currency.

 

Economic Calendar for Thursday, January 22, 2015:

08:30 A.M. ET: Initial Jobless Claims (January 16)
08:30 A.M. ET: Continuing Jobless Claims (January 09)
09:00 A.M. ET: FHFA House Price Index (MoM) (November)
10:30 A.M. ET: EIA Natural Gas Storage change (January 16)
11:00 A.M. ET: EIA Crude Oil Stocks change (January 16)
11:00 A.M. ET: Kansas Fed Manufacturing Activity (January)
11:00 A.M. ET: 3-Month Bill Announcement
11:00 A.M. ET: 6-Month Bill Announcement
11:00 A.M. ET: 2-Year Note Announcement
11:00 A.M. ET: 5-Year Note Announcement
11:00 A.M. ET: 7-Year Note Announcement
01:00 P.M. ET: 10-Year TIPS Auction
04:30 P.M. ET: Fed Balance Sheet
04:30 P.M. ET: Money Supply

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Abhijit Sen

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