Risky Assets Rally on Central Banks, Oil – ECB in focus on Thursday

Global stocks advanced for a second day in a row on Wednesday on the backdrop of a surprise draw in oil inventories, sending oil prices to 15-month highs along with a general dovish tone from central banks, where the Central Bank of Brazil lowered rates yesterday and the Bank of Canada kept rates steady, with further easing being discussed.

In the US, the energy sector, led by Halliburton (up 4.3% on solid earnings and oil) along with upbeat earnings from JP Morgan contributed positively to sending the S&P up 0.2%. Europe was green across the board in benchmark indices with the DAX up 0.1%. the FTSEMIB up 0.5%, IBEX up 1% and the FTSE100 in the UK taking home 0.3%.

On the macro front, UK unemployment figures came out as expected and continue to show resilience in light of the Brexit coming out at 4.9% as expected with a positive development in the claimant count rate. US housing sector September data showed a solid pickup in Building Permits, while the Housing Starts fell more than expected.

FX markets saw the US Dollar increasing for the second day in a row and the Greenback is also continuing the positive momentum in Thursday’s trading, but the USD-Index is struggling to sustain above the 98-lvl.

USD-Index Daily (Source: Reuters)

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During the Asian session, where the positive mood from the US generally spilled over into Asian equities, Australian employment data came out mixed with a positive surprise in the overall unemployment, partly with a drop in the participation rate and a negative monthly change in employment. This sent the Aussie lower and AUDUSD is down 0.8% at time of writing. Technically the pair has been in an uptrend since May 2016 and attempted breaking out of the daily wedge formation yesterday, but found offers at the 0.7730-area.

AUDUSD Daily

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Europe has opened in positive and Euro Zone current account for August showed a continued the trend in the surplus. UK September Retail Sales came out lower than expected, but with August figures revised higher, the reaction in GBP-pairs was muted. GBPUSD has intra-day support at 1.2250.

In the afternoon, focus will turn towards the European Central Bank, which will release rates at 1345CET and host a press conference from 1430CET. We and the market do not expect any changes in neither the leading interest rate of 0% and the deposit facility of -0.4%, but in the light of tapering rumours, we expect some comments on that during the Q&A session. There is speculation that Draghi will announce a change to the technical parameters which potentially includes a removal of the yield floor.

EURUSD has been selling off during October and should we see a removal of the yield floor, we could see further deterioration of the Euro. Technically, EURUSD is close to the 61.8% Fibo retracement in the wave from Q4 2015 to the 2016 highs with the Brexit lows at 1.0910-area being the line in the sand – a break below would open up for a test of the 1.09-figure before there is room for a move towards the March 2016 lows at 1.0825-area.

EURUSD Daily

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