ECB lifts stocks off lows and sinks euro

Stocks in Asia and Europe turned positive after the ECB announcement of fresh loans, shrugging off a lower start that stemmed from slower economic growth concerns persist and uncertainty remaining high on what type of trade deal will be reached between China and the US.  The ECB joined the dovish camp of central banks worldwide with fresh cuts to their outlook and new long-term loans.  Two weeks ago, expectations were for President Trump and Xi to reach a possible accord by mid-March, but if we do not see a date set in stone for a meeting in Mar-a-Lago, stocks could continue to fall under pressure and safe-haven currencies may accelerate gains.

EURO – ECB surprises some with fresh loans

Brexit – EU not optimistic for a breakthrough

Stocks –  Reversed earlier losses on ECB stimulus

Gold – Follows euro move lower

Oil – Crude rises on tightness in markets; banks keep bullish forecasts 

EURO

The ECB joined the recent camp of dovish central bankers and announced a new series of two-year TLTROs .  This round of cheap loans to banks cemented the view that the ECB is nowhere near raising rates with some believing a rate hike could now happen at the end of 2020.  The euro has been stuck in a frustrating 1.12 and 1.16 range against the dollar, and while some are disappointed the Targeted Long-Term Loans details, we may see this fresh dovish stance not see as much weakness as we would normally as dovish stances have also been queued up by the Fed and PBOC.

GBP

It appears that European and UK officials are starting to realize a breakthrough is unlikely.  Next week will likely deliver three key votes, with expectations favoring May’s Brexit deal to get voted down, no-deal Brexit to be taken off the table, and for Article 50 to be extended.  The base case is that we will probably see a short Brexit delay and that some form of the current deal will eventually be accepted.  The uncertainty that persists ahead of these key votes are dragging down the British pound.

Stocks

US equities are poised to open higher after the ECB announced fresh loans to support the banks and cuts to all their inflation forecasts and slashing 2019 GDP growth from 1.7% to 1.1%.  The dovish ECB meeting further confirms a global deceleration that is seeing other major banks, like the Fed and PBOC, becoming more dovish.  The Fed is holding rates steady and will like end their quantitative tightening sooner than later, China will deliver fiscal and monetary stimulus, and stocks will have this backdrop of easy money supporting risk assets.  Earnings seasons is ending, and the street has priced in a soft first quarter with hopes of a stronger second half of the year.

Gold

The precious metal is tracking the euro lower this morning and gold bulls will look to see if we finally see support hold if we test $1,270.  Gold’s recent pullback has been supported by strong trade talk optimism between China and the US, relief that a no-deal Brexit is unlikely and US economic growth is cooling, not collapsing.  With most of the advanced economies remaining or becoming accommodative, gold could soon find some support.

Oil

Crude prices were supported on news Venezuela’s PDVSA is having difficulty exporting oil due to the US sanctions, supporting the view that supplies are still tightening despite US output continuing to rise to record levels.  Oil forecasts by banks are still calling for prices to rise in the first half of the year, supported by a tight second quarter.  By 2020, the banks are seeing WTI trade near $63 a barrel, with Brent at $68.

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