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Earnings and ECB Muscle for Market’s Attention

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January 21, 2015

The European Central Bank is holding global financial markets captive ahead of a Thursday meeting expected to result in more monetary juice for the struggling European economy. Markets may feel on edge anecdotally but at least one key indicator of sentiment, the CBOE Volatility Index (VIX), fell below the psychologically significant “20” line on Tuesday—a day of pretty sloppy overall U.S. stock trading and yet a decline in one “worry” measure? Europe is the big story for financial markets but it’s not the only news as the ECB’s expected policy move and anticipated reaction in global markets is fighting for headline space with U.S. earnings news.

FIGURE 1:

The CBOE Volatility Index (VIX) tracks the implied volatility priced into S&P 500 options. It slipped back below 20 on Tuesday. Chart source: TD Ameritrade’s thinkorswim® platform. Data source: CBOE. For illustrative purposes only. Past performance does not guarantee future results.

Reading Between the Lines? Europe’s leading stock indices fell Wednesday after ECB member Ewald Nowotny advised against getting “overexcited” about the Thursday meeting as the focus should remain on the longer-term. Investors are anticipating that the central bank will outline a plan for sovereign bond-buying in an effort to boost inflation levels. It’s been a fairly well-telegraphed (though not guaranteed) policy response. Does Nowotny mean expect no action? Expect no surprises? Just enough intrigue here to keep things interesting.

SOTU. So What? Always an important exercise for the country, but its impact on stock trading isn’t always clear. President Obama told the nation in primetime last night that he wants tax breaks and other stimulus that he says targets “middle class economics.” Of course, he’ll work to advance this agenda against a Congress that for the first time in his presidency is fully controlled by Republicans. MarketWatch does have an article on State of the Union Addresses and recent market history.

Big Blues for IBM, Not for Netflix. Investors aren’t too happy with IBM (IBM) after its latest report. Shares neared four-week lows of $153 on Wednesday as investors reacted to its mixed Q4 earnings and outlook, particularly as software revenues of $7.58 billion were down 3% year-over-year and below the consensus. Several Street analysts said they’re already looking ahead to 2016 for Big Blue as it moves through transition. Will investors be as patient? Bulls are charging in to Netflix (NFLX) after its upbeat late-Wednesday quarterly results and a subscriber-growth number that clobbered Street expectations. The streaming video-service added 4.33 million net subscribers in Q4, and expects to add 4.05 million new members in the current quarter.

Good trading,
JJ
@TDAJJKinahan

NC
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