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Market Update

Can Strong Move by ECB Boost Stocks? Market Up Early on Stimulus

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March 10, 2016

(Thursday Pre-Market) The Street’s focus Thursday is on Europe, where the European Central Bank (ECB) announced a 10-basis-point cut in the deposit rate to -0.4%, expanded its monthly asset purchases to 80 billion euros from 60 billion, and cut its key lending rate to zero. U.S. stocks rose on the news of continued European stimulus, which was somewhat more aggressive than consensus estimates.

After the ECB announcement, the euro slid against the dollar but then quickly reversed and briefly climbed above $1.11, European stocks rose, U.S. 10-year Treasury yields ticked upward, and U.S. oil futures made small gains. Consensus among economists had been for the ECB to cut the deposit rate, but the ECB’s decisions to cut the lending rate and add to its asset purchases, as well as to start buying investment-grade corporate bonds, were strong moves that not all economists had anticipated, especially after the ECB took a conservative approach at its previous meeting.

Typically, stimulus measures like those announced Thursday can help strengthen equities, and the ECB meeting was the first of three major monetary policy meetings on the near-term agenda, with the Bank of Japan (BOJ) and the U.S. Fed holding meetings next week. Economists don’t expect the Fed to make any interest rate moves at its meeting next week.

ECB President Mario Draghi was speaking shortly after the ECB’s announcement. In the past, the market has sometimes moved on his post-meeting remarks. Draghi said the ECB’s moves are designed to reinforce the economy and accelerate inflation’s return to the ECB’s target, MarketWatch reported.

S&P 500 (SPX) futures climbed above psychological resistance at 2000 after the ECB news. The index closed above that level on Monday but hasn’t repeated that feat. The question is whether the index can hold above that level into the regular trading day.

In other news Thursday, U.S. weekly jobless claims came in at 259,000, under the consensus estimate of 275,000. Otherwise, it’s a light day for U.S. data.

S&P 500

FIGURE 1: STILL WATCHING 2000.

The S&P 500 (SPX), plotted here through Wednesday on the TD Ameritrade thinkorswim® platform, still faces psychological resistance at the 2000 mark, which it closed above on Monday. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Bank of Japan Next Week: Interest rates in Japan are negative, but there’s pressure on the BOJ to take a more conservative approach on rates next week despite gloomy economic conditions, The Wall Street Journal reported. According to the newspaper’s report, negative rates have caused worry among the Japanese public. However, an adviser to the prime minister argued Thursday for further easing when the BOJ meets March 15, media reports said.

Wholesale Inventories Data Surprises: U.S. wholesale inventories for January rose 0.3% as sales fell, the Commerce Department reported Wednesday. That contrasted with the consensus prediction by Briefing.com for a 0.2% decline in inventories. The data suggested that efforts by businesses to reduce an inventory overhang could persist well into 2016 and restrain economic growth, Reuters reported, citing economists.

Weekly U.S. Oil Stock Data Doesn’t Surprise: U.S. weekly crude oil inventories rose by 3.9 million barrels, but gasoline inventories fell by 4.5 million barrels, the U.S. Energy Information Administration (EIA) said in its weekly report Wednesday. Those results were roughly in line with estimates, and the relatively large gasoline draw lent support to the oil market Wednesday, analysts told the media. U.S. oil inventories remain at historic highs.

Good Trading,
JJ
@TDAJJKinahan

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