6th June 2014 - Economic and Market Update
Global Market Data as of 6th June 2014
FTSE 100 6,813.49 (-0.08%) Dax 9,947.83 (+0.21%)
CAC 40 4,548.73 (+1.06%) BEL 20 3,152.34 (-0.26%)
Madrid IBEX 10,876.40 (+1.12%) Zurich SMI 8,643.28 (-0.21%)
Moscow MCIEX 1,468.60 (+5.84%) Sydney ASX 5,443.50 (+0.44%)
Nikkei 225 14,346.20 (+2.17%) Hang Seng 23,074.96 (-0.15%)
Shang SSE Comp 2,028.23 (-0.62%)
Dow Jones 16,836.11 (+0.59%) NASDAQ 4,296.23 (+1.05%)
S&P 500 1,940.46 (+0.65%)
Markets in Asia were relatively quiet today as they reacted quite quietly after the ECB announcement yesterday. The Nikkei posted early gains which it lost then clawed back to finish the day up 2.07%. Chinese markets fell short of the Japanese performance ahead of economic data tomorrow. With figures on Balance of Trade and Import and Export data due investors were cautious before the weekend and probably happy to close out the week on a fairly positive note. The Chinese Balance of Trade is set to correct from its huge deficit last month of $123.95bn to a more acceptable $13.8bn, a substantial correction by any means.
European indexes should open slightly higher today after the news form the ECB has had time to settle in. The long awaited announcement from the European Central Bank saw the majority of EU markets see gains, although the FTSE100 was left behind after the Bank of England kept inflation the same. The Dax broke 10,000 for the first time ever and the CAC40 managed over a 1% gain on the news. Mario Draghi confirmed what many in the markets forecast by reducing the ECB deposit rate into negative territory, the first time this has been done on an economy of this size. The drop from 0% to -0.1% will see banks having to pay to leave funds with the ECB overnight and is an attempt to push banks towards lending more as opposed to holding larger reserves. They also dropped their benchmark rate by 10 points to 0.15% along with some initiatives aimed at getting more loans out to smaller businesses. The central bank is making up to €400bn available to banks which is capped to 7% of the cash lent to businesses. This should see banks clearing more loans as the more they lend, the more they can borrow from the ECB at a lower rate. Along with this, there is also a provision for the ECB to effect a type of "Bond Buying" program whereby they will bundle together small business loans from the banks under a bond format. These measures are the ECB's first attempt at a stimulus package of this sort and they were very vocal about trying to avoid a Federal Reserve style QE program yet they also allowed that that style of stimulus would not be ruled out if it was required.
Market in the Us initially reacted poorly to the ECB decision and subsequent announcement yet managed to rally through and again hit record highs. The local markets were buoyed by jobs data of which more is to follow later today. The general sentiment is that the economy is now out of recovery and into expansion and looking forward to the Non-farms payroll later, although forecast to be lower than Aprils 288,000 additional jobs at 218,000, this will be the fourth month of expansion and a strong indicator that the economy is indeed expanding as more jobs are created. If the forecast for payroll is correct, the US has effectively managed to return the 8.7m jobs that were lost at the height of the recession back to the market even though unemployment is expected to creep back up to 6.4%.
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