? Global equity gains on dovish ECB remarks, PBOC rate cut and earnings season
? ECB dovish remarks are non-binding
? DAX records no less than 6.8% weekly increase
? Euro wakens, Dollar gains on dovish ECB and PBOC
Markets are enjoying yet another positive week, with many of major indices climbing to new highest levels since August. The weekly rally was fueled mostly by dovish, yet non-binding, comments made by the European Central Bank and a rate cut by the People’s Bank of China. European equity responded well to the dovish ECB, seeing the DAX score a 6.8% weekly gain, the third consecutive for the German Index. The S&P 500 (SPY) added 2.1% during the week, with a 2.8% gain between Thursday and Friday. The Nasdaq (QQQ) added a total of 3%, coming 3.6% off of its historical high, aided by strong reports from Amazon, Microsoft and Google’s parent firm, Alphabet.
With the Fed’s current positioning being rather far from a Quantitate Easing, or even a rate cut, global investors rushed to the USD and its more appealing yield curve. The greenback strengthened by 2.9% vs. the Euro during the week, more than 2% of this on Thursday and another 0.8% on Friday, leading the currency pair to its lowest levels since early August. Abiding a similar rationale EUR/GBP lost 2.1% during the week.
ECB’s credibility seems to be running quite high
The aforementioned rabid market response to the ECB’s ‘dovish’ rate announcement is more impressive considering that no cut of rates was announced, neither was a new Quantitative Program introduced, but rather it was just Draghi implying something of that fashion is more likely in December’s rate announcement. Draghi’s well-crafted language at the start of the press conference stated that “the degree of monetary policy accommodation will need to be reexamined at our December monetary policy meeting” and that “the Governing Council is willing and able to act by using all the instruments available within its mandate.”
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