ECB Extends Stimulus Program

Daily Analysis - 27/10/2017

Euro Slumps to 3-Month Low Versus Dollar


The European Central Bank prolonged its bond buying programme by nine months and kept the option open to extend purchases again if necessary, sending the Euro to its lowest level since July 26th against the US dollar. Investors were disappointed with ECB’s cautious approach, which contrasted with the US Federal Reserve’s efforts to normalise monetary policy.

Euro Bulls Mauled by Taper Decision

The ECB has been running a €60 billion per month bond buying program in an attempt to revive growth and inflation among the Euro Area member states. The Central Bank announced on Thursday that it will now extend the stimulus at a pace of €30 billion in purchases per month from January until at least September of 2018, but tried to provide a cushion by deciding to continue reinvesting proceeds from maturing securities. Money markets are now pushing the likelihood of a first 15-basis point ECB interest rate hike further into the second quarter of 2019. This decision contrasted sharply with speculators anticipating the Central Bank would surprise would a hawkish decision. The EURUSD pair has since snapped a two-day rally following the announcement to currently hover around the 1.1640-mark, down nearly -1.30% for the week.


US Housing Demand Continues to Exceed Supply

Depressed sales in the US south-east due to Hurricane Irma and a limited number of property listings elsewhere saw the number of people who signed contracts to buy homes remain flat in September, according to data published by the National Association of Realtors. The trade body’s Pending Home Sales Index, which is based on contracts signed in the prior month, was unchanged at 106.0 while the August reading was revised lower. Economists surveyed by Reuters had expected pending home sales to inch 0.20% higher in September. Pending home contracts are often viewed as leading indicators of the state of the housing market. US home sales have faltered this year amidst tighter inventories while builders have cited land and labour shortages as barriers to construction. S&P 500 futures closed higher on Thursday after a clutch of better-than expected corporate earnings before flattening out in early Friday trade.


China Industrial Profits Climb Most in Nearly 6-Years

Fears of winter supply shortages sent prices of finished goods like steel and copper higher, resulting in a steep rise in September profits at China’s industrial firms.  Figures unveiled by the National Bureau of Statistics showed that profits surged 27.70% in September from a year earlier to CNY 662.18 billion ($99.46 billion) compared to the 24.00% gain recorded in August. Apart from marking the fastest growth pace since December of 2011, profits expanded by 31.50%. During the first nine months of the year, firms reported profits of CNY 5.58 trillion, a 22.80% jump from the year-ago period. The sustained earnings growth should give Chinese policymakers more room to restructure inefficient state-owned enterprises, which dominate the country’s industrial establishment and account for a significant chunk of its corporate debt. Meanwhile, the AUDNZD pair is down in Friday Asian trade to around 1.1160.


Brent Crude Eyes $60 Per Barrel

Oil prices edged higher on Friday amid expectations of a tighter market following comments from Saudi Arabia's Crown Prince supporting the extension of OPEC-led production cuts. Prince Mohammad bin Salman told Reuters in a Thursday interview that his country would back extending the output curb in a bid to further stabilise existing supply-demand conditions. The Organization of Petroleum Exporting Countries and a few other leading exporters including Russia have agreed to slash their production by around 1.80 million barrels a day until March of 2018 to drain a global supply glut. OPEC is scheduled to meet on November 30th in Vienna to discuss extending the deal past the current deadline. Brent futures for December delivery have pulled back from  earlier highs to just shy of $59.40 a barrel - levels last seen in the middle of 2015.


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